Can I afford this home? $-$ Part $1$

Can Eric and Ginny afford this home using the monthly income loan criterion?

Next week, your friends Eric and Ginny 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 $$155,000.$ Glven 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, Eric and Ginny also collected the following Information:

Their financlal records report a combined gross before$-$tax annual income of $$105,000$ and current $($premortgage$)$ installment loan,

credit card, and car loan debt of $$1,531$ per month.

Their property taxes and homeowner's insurance pollcy are expected to cost $$2,325$ per year.

Their best estimate of the interest rate on their mortgage is $7\mathrm{.}5\%,$ 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 an affordability ratio that ranges from a minimum of $25\%$ to a maximum of

$30\%.$

Use elther your flnanclal calculator or the maximum affordable mortgage foan formula to complete the following home affordabilty worksheet. $($Note:

When completing the form, round each dollar amount to the nearest whole dollar. Unless labeled differentiy, all of the following values represent dollar

amounts. Also, some values caiculated or used in the upper section of the table may also be used in the lower section.$)$

MAXIMUM AFFORDABLE MORTGAGE LONN FORMULA

where

Home Affordability Worksheet

Based on Monthly Income

Annual Income

Monthly income

Lender's monthly income affordability ratio

Maximum monthly mortgage payment $($PITI$)$

Estimated monthly property tax and Insurance payment

Maximum monthly loan payment $(P$ and I only$)$

Expected Interest rate

Planned loan maturity $($years$)$

Maximum loan based on monthly income

Funds Avallable for a Down Payment and Closing Costs

Required $(20\%)$ Down Payment

Maximum Purchase Price Based on Monthly Income

Given these results, which statement regarding Eric and Ginny$$s mortgage quallication process and the purchase of their $$155,000$ target home is

true?

Eric and Ginny qualify to purchase their $$155,000$ target home according to the Monthly Income Affordability Worksheet criterlon.

Eric and GInny do not qualify to purchase their $$155,000$ target home according to the Monthly Income Affordability Worksheet criterion.