12. Can I afford this home? - Part 2 Can Aiden and Jesse Afford This Home Using the Installment Debt Loan Criterion? Next week, your friends Aiden and Jesse want to apply to the Fourth Global Bank for a mortgage loan. They are considering the purchase of a home that is expected to cost $155,000. 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, Aiden and Jesse also collected the following information: Their financial records report a combined gross before-tax annual income of $145,000 and current (pre-mortgage) installment loan, credit card, and car loan debt of $2,115 per month. Their property taxes and homeowner's insurance policy are expected to cost $1,550 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 $38,500 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. Interest Rate (%) 5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5 10.0 10 Year 106.0655 108.5263 111.0205 113.5480 116.1085 118.7018 121.3276 123.9857 126.6758 129.3976 132.1507 Loan Maturity 15 Year 79.0794 81.7083 84.3857 87.1107 89.8828 92.7012 95.5652 98.4740 101.4267 104.4225 107.4605 25 Year 65.9956 58.4590 53.6822 68.7887 61.4087 56.7789 71.6431 64.4301 59.9551 74.5573 67.5207 63.2068 77.5299 70.6779 66.5302 80.5593 73.8991 69.9215 83.6440 77.1816 73.3765 86.7823 80.5227 76.8913 89.9726 83.9196 80.4623 87.3697 84.0854 87.7572 20 Year 93.2131 96.5022 90.8701 30 Year 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 Affordability Worksheet 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 installment loan affordability ratio 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) 13. 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 38% Low Value 33% Amount 7.5% 15 % Given these results, which statement regarding Aiden and Jesse's mortgage qualification process and their purchase of their $155,000 target home is true? Aiden and Jesse qualify to purchase their $155,000 target home according to the Installment Debt Affordability Worksheet criterion. Aiden and Jesse do not qualify to purchase their $155,000 target home according to the Installment Debt Affordability Worksheet criterion. 12. Can I afford this home? - Part 2 Can Aiden and Jesse Afford This Home Using the Installment Debt Loan Criterion? Next week, your friends Aiden and Jesse want to apply to the Fourth Global Bank for a mortgage loan. They are considering the purchase of a home that is expected to cost $155,000. 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, Aiden and Jesse also collected the following information: Their financial records report a combined gross before-tax annual income of $145,000 and current (pre-mortgage) installment loan, credit card, and car loan debt of $2,115 per month. Their property taxes and homeowner's insurance policy are expected to cost $1,550 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 $38,500 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. Interest Rate (%) 5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5 10.0 10 Year 106.0655 108.5263 111.0205 113.5480 116.1085 118.7018 121.3276 123.9857 126.6758 129.3976 132.1507 Loan Maturity 15 Year 79.0794 81.7083 84.3857 87.1107 89.8828 92.7012 95.5652 98.4740 101.4267 104.4225 107.4605 25 Year 65.9956 58.4590 53.6822 68.7887 61.4087 56.7789 71.6431 64.4301 59.9551 74.5573 67.5207 63.2068 77.5299 70.6779 66.5302 80.5593 73.8991 69.9215 83.6440 77.1816 73.3765 86.7823 80.5227 76.8913 89.9726 83.9196 80.4623 87.3697 84.0854 87.7572 20 Year 93.2131 96.5022 90.8701 30 Year 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 Affordability Worksheet 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 installment loan affordability ratio 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) 13. 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 38% Low Value 33% Amount 7.5% 15 % Given these results, which statement regarding Aiden and Jesse's mortgage qualification process and their purchase of their $155,000 target home is true? Aiden and Jesse qualify to purchase their $155,000 target home according to the Installment Debt Affordability Worksheet criterion. Aiden and Jesse do not qualify to purchase their $155,000 target home according to the Installment Debt Affordability Worksheet criterion