9. Can I afford this home? - Part 1 Can Musashi and Rina afford this home using the monthly income loan criterion? Next week, your friends Musashi and Rina want to apply to the Fifth State 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, Musashi and Rina also collected the following information: . Their financial records report a combined gross before-tax annual income of $145,000 and current (premortgage) 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 $1,613 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%. Use either the table of monthly payments (necessary to repay a $10,000 loan), your financial calculator, or the maximum affordable mortgage loan formula to complete the following home affordability worksheet. (Note: When completing the form, round each dollar amount to the nearest whole dollar. 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.) Monthly Payments Factors 7.0 66.5302 Maximum Affordable Mortgage Loan Formula 116.1085 89.8828 77.5299 70.6779 118.7018 92.7012 80.5593 73.8991 121.3276 95.5652 83.6440 77.1816 7.5 69.9215 73.3765 8.0 8.5 123.9857 98.4740 86.7823 80.5227 76.8913 9.0 126.6758 101.4267 89.9726 83.9196 80.4623 9.5 129.3976 104.4225 93.2131 87.3697 84.0854 10.0 132.1507 107.4605 96.5022 90.8701 87.7572 High Value Low Value Amount 30% 25% 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. 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 7.5% 15 Given these results, which statement regarding Musashi and Rina's mortgage qualification process and the purchase of their $215,000 target home is true? Musashi and Rina qualify to purchase their $215,000 target home according to the Monthly Income Affordability Worksheet criterion. Musashi and Rina do not qualify to purchase their $215,000 target home according to the Monthly Income Affordability Worksheet criterion
