9. Can I afford this home? - Part 1 Can Susan and Raphael afford this home using the monthly income loan criterion? Next week, your friends Susan and Raphael 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. To assist in the preparation of the worksheet, Susan and Raphael 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 $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 an affordability ratio that ranges from a minimum of 25% to a maximum of 30%. MAXIMUM AFFORDABLE MORTGAGE LOAN FORMULA Maximum Monthly Loan Payment| 1- Maximum Affordable Mortgage Loan = (1+1) (12x) where i = interest rate N = number of years 12 12 Home Affordability Worksheet Based on Monthly Income 1. Annual income 2. Monthly income 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. Maximum loan based on monthly income 10. Funds Available for a Down Payment and Closing Costs 11. Required (20%) Down Payment 12. Maximum Purchase Price Based on Monthly Income High Value Low Value Amount 30% 25% 7.5% 15 Given these results, which statement regarding Susan and Raphael's mortgage qualification process and the purchase of their $215,000 target home is true? Susan and Raphael do not qualify to purchase their $215,000 target home according to the Monthly Income Affordability Worksheet criterion. Susan and Raphael qualify to purchase their $215,000 target home according to the Monthly Income Affordability Worksheet criterion