9. Can I afford this home? - Part 1 Can Abigail and Alexander Afford This Home Using the Monthly Income Loan Criterion? Next week, your friends Abigail and Alexander want to apply to the Third Universal Bank for a mortgage loan. They are considering the purchase of a home that is expected to cost $245,000. 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, Abigail and Alexander also collected the following information: . Their financial records report a combined gross before-tax annual income of $85,000 and current (premortgage) installment loan, credit card, and car loan debt of $1,240 per month. Their property taxes and homeowner's insurance policy are expected to cost $3,063 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 $56,500 that can be used to satisfy the home's down payment and closing costs. The lender requires a minimum 20% down payment, and an affordability ratio that ranges from a minimum of 25% to a maximum of 30% . A table of monthly payments (necessary to repay a $10,000 loan) follows: 10 Years Interest Rate (%) 5.0 30 Years Loan Maturity 15 Years 20 Years 79.0794 65.9956 25 Years 58.4590 106.0655 5.5 53.6822 56.7789 108.5263 81.7083 68.7887 61.4087 6.0 111.0205 84.3857 71.6431 64.4301 59.9551 63.2068 6.5 87.1107 74.5523 67.5207 113.5480 116.1085 7.0 89.8828 77.5299 70.6779 66.5302 7.5 92.2012 80.5593 73.8991 69.9215 118.7018 121.3276 8.0 95.5652 83.6440 77.1816 73.3765 8.5 123.9857 98.4740 76.8913 9.0 126.6758 101.4267 104.4225 80.4623 86.7823 89.9726 93.2131 96.5022 80.5227 83.9196 87.3697 9.5 129.3976 84.0854 87.7572 10.0 132.1507 107.4605 90.8701 (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.) Home Affordability Worksheet Based on Monthly Income High Value Low Value Amount 1. Annual income (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.) Home Affordability Worksheet Based on Monthly Income 1. Annual income High Value Low Value Amount 2. Monthly income 30% 25% 3. Lender's monthly income affordability ratio 4. Maximum monthly mortgage payment (PITI) 5. Estimated monthly property tax and insurance payment 6. Maximum monthly loan payment (P and I only) 7.5% 7. Expected interest rate 8. Planned loan maturity (years) 9. Mortgage payment factor per $10,000 (from the Loan Maturity table) 15 10. Maximum loan based on monthly income 11. Funds Available for a Down Payment and Closing Costs 12. Required (2006) Down Payment 13. Maximum Purchase Price Based on Monthly Income Ch 05: Assignment - Making Automobile and Housing Decisions 2. Monthly income 30% 25% 7.5% 3. Lender's monthly income affordability ratio 4. Maximum monthly mortgage payment (PITI) 5. Estimated monthly property tax and insurance payment 6. Maximum monthly loan payment (P and I only) 7. Expected interest rate 8. Planned loan maturity (years) 9. Mortgage payment factor per $10,000 (from the Loan Maturity table) 10. Maximum loan based on monthly income 11. Funds Available for a Down Payment and Closing Costs 12. Required (20%) Down Payment 13. Maximum Purchase Price Based on Monthly Income 15 Given these results, which statement regarding Abigail and Alexander's mortgage qualification process and their purchase of their $245,000 target home is true? Abigail and Alexander do not qualify to purchase their $245,000 target home according to the Monthly Income Affordability Worksheet criterion. Abigail and Alexander quality to purchase their $245,000 target home according to the Monthly Income Affordability Worksheet criterion. 9. Can I afford this home? - Part 1 Can Abigail and Alexander Afford This Home Using the Monthly Income Loan Criterion? Next week, your friends Abigail and Alexander want to apply to the Third Universal Bank for a mortgage loan. They are considering the purchase of a home that is expected to cost $245,000. 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, Abigail and Alexander also collected the following information: . Their financial records report a combined gross before-tax annual income of $85,000 and current (premortgage) installment loan, credit card, and car loan debt of $1,240 per month. Their property taxes and homeowner's insurance policy are expected to cost $3,063 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 $56,500 that can be used to satisfy the home's down payment and closing costs. The lender requires a minimum 20% down payment, and an affordability ratio that ranges from a minimum of 25% to a maximum of 30% . A table of monthly payments (necessary to repay a $10,000 loan) follows: 10 Years Interest Rate (%) 5.0 30 Years Loan Maturity 15 Years 20 Years 79.0794 65.9956 25 Years 58.4590 106.0655 5.5 53.6822 56.7789 108.5263 81.7083 68.7887 61.4087 6.0 111.0205 84.3857 71.6431 64.4301 59.9551 63.2068 6.5 87.1107 74.5523 67.5207 113.5480 116.1085 7.0 89.8828 77.5299 70.6779 66.5302 7.5 92.2012 80.5593 73.8991 69.9215 118.7018 121.3276 8.0 95.5652 83.6440 77.1816 73.3765 8.5 123.9857 98.4740 76.8913 9.0 126.6758 101.4267 104.4225 80.4623 86.7823 89.9726 93.2131 96.5022 80.5227 83.9196 87.3697 9.5 129.3976 84.0854 87.7572 10.0 132.1507 107.4605 90.8701 (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.) Home Affordability Worksheet Based on Monthly Income High Value Low Value Amount 1. Annual income (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.) Home Affordability Worksheet Based on Monthly Income 1. Annual income High Value Low Value Amount 2. Monthly income 30% 25% 3. Lender's monthly income affordability ratio 4. Maximum monthly mortgage payment (PITI) 5. Estimated monthly property tax and insurance payment 6. Maximum monthly loan payment (P and I only) 7.5% 7. Expected interest rate 8. Planned loan maturity (years) 9. Mortgage payment factor per $10,000 (from the Loan Maturity table) 15 10. Maximum loan based on monthly income 11. Funds Available for a Down Payment and Closing Costs 12. Required (2006) Down Payment 13. Maximum Purchase Price Based on Monthly Income Ch 05: Assignment - Making Automobile and Housing Decisions 2. Monthly income 30% 25% 7.5% 3. Lender's monthly income affordability ratio 4. Maximum monthly mortgage payment (PITI) 5. Estimated monthly property tax and insurance payment 6. Maximum monthly loan payment (P and I only) 7. Expected interest rate 8. Planned loan maturity (years) 9. Mortgage payment factor per $10,000 (from the Loan Maturity table) 10. Maximum loan based on monthly income 11. Funds Available for a Down Payment and Closing Costs 12. Required (20%) Down Payment 13. Maximum Purchase Price Based on Monthly Income 15 Given these results, which statement regarding Abigail and Alexander's mortgage qualification process and their purchase of their $245,000 target home is true? Abigail and Alexander do not qualify to purchase their $245,000 target home according to the Monthly Income Affordability Worksheet criterion. Abigail and Alexander quality to purchase their $245,000 target home according to the Monthly Income Affordability Worksheet criterion