12. Can I afford this home? Part 2 Can Jacob and Madison Afford This Home Using the Installment Debt Loan Criterion? Next week, your friends Jacob and Madison 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 $185,000. 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, lacob and Madison also collected the following information: Their financial records report a combined gross before tax annual income of $85,000 and current (pre-mortgage) installment loan credit card, and car loan debit of $1,240 per month . Their property taxes and homeowner's insurance policy are expected to cost $1,388 per year. The 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 $44,500 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 386 A table of monthly payments (necessary to repay a 510,000 loan) follows. A table of monthly payments (necessary to repay a $10,000 loan) follows. Loan Maturity 15 Year Interest Rate (%) 10 Year 20 Year 25 Year 30 Year 5.0 106.0655 79.0794 65.9956 58.4590 53.6822 5.5 108.5263 81.7083 68.7887 61.4087 56.7789 6.0 111.0205 84.3857 71.6431 64.4301 59.9551 63.2068 6.5 113.5480 87.1107 74.5573 67.5207 70.6779 7.0 89.8828 66.5302 116.1085 118.7018 77.5299 80:5593 7.5 92.7012 73.8991 69.9215 8.0 121.3276 77.1816 73.3765 95.5652 98.4740 8.5 123.9857 80.5227 76.8913 9.0 80.4623 83.9196 83.6140 86.7823 89.9726 93.2131 96.5022 126.6758 129.3976 101.4267 104.4225 87.3697 84.0854 9.5 10.0 132.1507 107.460S 90.8701 87.7572 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 High Value Low Value Amount Amount High Value Low Value 38% 33% 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 rabo 6. Maximum amount of total affordable installment debt 7. Maximum monthly mortgage payment (PITI) affordable based on installment loan ratio B. 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 (205) down payment 15. Maximum home price based on installment loan ratio 7.5% 15 Given these results, which statement regarding Jacob and Madison's mortgage qualification process and their purchase of the $185,000 target home is true O Jacob and Madison quality to purchase their $185,000 target home according to the installment Debit Affordability Worksheet ctenon Olacob and Madison do not quality to purchase their $185.000 target home according to the Installment Debt Affordability Worksheet antenon
