12. Can I afford this home? Part 2 Aa Aa Can Cheyenne and Michael Afford This Home Using the Installment Debt Loan Criterion? Next week, your friends Cheyenne and Michael want to apply to the Tenth National Bank for a mortgage loan. They are considering the purchase of a home that is expected to cost $215,000. Given your knowledge of personal finance, they've asked for your help in completing the Home Affordability Worksheet that follows. (Note: When completing the form, round each dollar amount to the nearest whole dollar.) To assist in the preparation of the worksheet, Cheyenne and Michael also collected the following information: Their financial records report a combined gross before-tax annual income of $125,000 and current (pre-mortgage) installment loan, credit card, and car loan debt of $1,823 per month. . Their property taxes and homeowner's insurance policy are expected to cost $4,300 per year Their best estimate of the interest rate on their mortgage is 7.5%, and they are interested in obtaining a 15-year loan. . They have accumulated savings of $50,500 that can be used to satisfy the home's down payment and closing costs. * The lender requires a minimum 20% down payment, and installment loan affordability ratios that range from a minimum of 33% to a maximum of 38%. A table of monthly payments (necessary to repay a $10,000 loan) follows 6.5 7.0 7.5 8.0 8.5 111.0205 113.5480 116.1085 118.7018 121.3276 123.9857 126.6758 101.4267 29.3976 104.4225 132.1507 107.4605 84.3857 87.1107 89.8828 92.7012 95.565 98.4740 71.6431 4.5573 77.5299 80.5593 83.6440 86.7823 89.9726 93.2131 96.5022 4.4301 67.5207 0.6779 73.8991 7.1816 80.5227 83.9196 87.3697 90.8701 59.9551 63.2068 66.5302 69.9215 3.3765 76.8913 80.4623 84.0854 87.7572 9.5 10.0 Note: Unless labeled differently, all of the following values represent dollar amounts. Also, some values calculated or used in the upper section of the table may also be used in the lower section. Remember to round each dollar amount to the nearest whole dollar Home Based on Installment Payments and Monthly Income 1. Annual income 2. Monthly income 3. Existing monthly installment payments 4. Existing monthly installment payments as percentage of monthly income (%) 5. Lender's monthly installiment loan affordability ratic 6. Maximum amount of total affordable installment debt 7. Maximum monthly mortgage payment (PITI) affordable based on installment loan ratio 8. Estimated monthly property tax and insurance payment 9. Maximum monthly loan payment (P and I only) 10. Expected interest rate 11. planned loan maturity (years) 12. Mortgage payment factor per $10,000 (from the Loan Maturity table) 3. Maximum loan based on mortgage payment factor (from the Loan Maturity table) 14. Required (20%) down payment 15. Maximum home price based on installment loan ratio High Value Low Value Amount 38% 33% 7.5% 15 Given these results, which statement regarding Cheyenne and Michael's mortgage qualification process and their purchase of their $215,000 target home is true? O Cheyenne and Michael do not qualify to purchase their $215,000 target home according to the Installment Debt Affordability Worksheet criterion. O Cheyenne and Michael qualify to purchase their $215,000 target home according to the Installment Debt Affordability Worksheet criterion
