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 loam. 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 compleleting 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, Jacob and Madison also collected the following information:

$q,-$ Their financial records report a combined gross before$-$tax annual income of $$85,000$ and currert $($pre$-$monartgage$)$ installment loan, credit card, and car loan debt of $$1,240$ per month.

Their property taves and homeowiner's insurance policy are expected to cost $$1,388$ per yinar :

Their best estimate of the interest rate on their mortgage is $7\mathrm{.}5\%,$ and they are interested in obtaining $=15-$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 $3396$ to a maximum of $38\%\%.$

A table of monthly payments $($necessary to repay $-=$$$10,000$ loan$)$ follows.

A table of monthly payments $($necessary to repay a $$10,000$ loan$)$ follows.

$\backslash$table$[[$n$,,$Loan Maturity,,,$],[$Interest Rate $(\%),10$ Year,$15$ Year,$20$ Year,$25$ Vear,$30$ Year$],[5\mathrm{.}0,106,0655,79\mathrm{.}0794,65\mathrm{.}9956,58\mathrm{.}4590,5$

Note: Unless labeled differently, all of the following values represent dollar amounts. Also, some values ca cylated or wsed 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 dallar:

Home Affordability Worksheet

Based on Installment Payments and Monthly Income

Annual income

Monthly income

Existing monthly installment payments

Existing monthly installment payments as percentage of monthly income $(\%)$

Lender's monthly installment loan affordability ratio

Maximum amount of total affordable installment debt

Maximum monthly mortgage payment $($PITI$)$ affordable based on installment loan ratio

Estimated monthly property tax and insurance payment

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

Expected interest rate

Planned loan maturity $($years$)$

Mortgage payment factor per $$10,000($from the Loan Maturity table$)$

Maximum loan based on mortgage payment factor $($from the Loan Maturity table$)$

Required $(20\%)$ dowi payment

Maximum home price based on installment loan ratio

Given these results, which statement regarding Jacob and Madison's mortgage qualification process and their purchase of their $$185,000$ target hom is true?

$$ Jacob and Madison do not qualify to purch $-=se$ their $$185,000$ target home according to the Instalilment $D=bt$ Afford abiligy worksheet criterion.

$$ Jacob end Madison qual fy to purchase the $$185,000$ target home according to the Installment Deb: Afforcability Workshee: cricerion$36822],[5\mathrm{.}5,108\mathrm{.}5263,81,7083,68\mathrm{.}7887,61\mathrm{.}4087,567789],[6\mathrm{.}0,111\mathrm{.}0205,84,3857,71\mathrm{.}6431,54,4301,59\mathrm{.}9551],[6\mathrm{.}5,113,5480,87\mathrm{.}1107,74\mathrm{.}5573,67\mathrm{.}5207,63\mathrm{.}2068],[7,0,116\mathrm{.}1085,89\mathrm{.}8828,77\mathrm{.}5299,70\mathrm{.}6779,65\mathrm{.}5302],[7\mathrm{.}5,118\mathrm{.}7018,92\mathrm{.}7012,50\mathrm{.}5593,73\mathrm{.}8991,69\mathrm{.}9215],[8\mathrm{.}0,121\mathrm{.}3276,95\mathrm{.}5652,83\mathrm{.}6440,77\mathrm{.}1816,73\mathrm{.}3765],[8\mathrm{.}5,123\mathrm{.}9857,98\mathrm{.}4740,86\mathrm{.}7823,80\mathrm{.}5227,76\mathrm{.}8512],[9\mathrm{.}0,126,6758,101,4267,89\mathrm{.}9726,83\mathrm{.}9196,80\mathrm{.}4623],[9\mathrm{.}5,129,3976,104,4225,93\mathrm{.}2131,87\mathrm{.}3697,940854],[10\mathrm{.}0,132\mathrm{.}1507,107,4605,96\mathrm{.}5022,90\mathrm{.}8701,7.]]$