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Can Sharon and Paolo afford this home using the monthly income loan criterion? Next week, your friends Sharon and Paolo want to apply to the
Can Sharon and Paolo afford this home using the monthly income loan criterion?
Next week, your friends Sharon and Paolo 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 $ Given your knowledge of personal finance, theyve asked for your help in completing the Home Affordability Worksheet that follows.
To assist in the preparation of the worksheet, Sharon and Paolo also collected the following information:
Their financial records report a combined gross beforetax annual income of $ and current premortgage installment loan, credit card, and car loan debt of $ per month.
Their property taxes and homeowners insurance policy are expected to cost $ per year.
Their best estimate of the interest rate on their mortgage is and they are interested in obtaining a year loan.
They have accumulated savings of $ that can be used to satisfy the homes down payment and closing costs.
The lender requires a minimum down payment, and an affordability ratio that ranges from a minimum of to a maximum of
Use either 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.
Maximum Affordable Mortgage Loan FormulaExcel
Maximum Affordable Mortgage Loan
Maximum Monthly Loan Paymenttimes itimes Ni
where
i
interest rate
N
number of years
Home Affordability Worksheet
Based on Monthly Income High Value Low Value Amount
Annual income
Monthly income
Lenders 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 Available for a Down Payment and Closing Costs
Required Down Payment
Maximum Purchase Price Based on Monthly Income
Given these results, which statement regarding Sharon and Paolos mortgage qualification process and the purchase of their $ target home is true?
Sharon and Paolo qualify to purchase their $ target home according to the Monthly Income Affordability Worksheet criterion.
Sharon and Paolo do not qualify to purchase their $ target home according to the Monthly Income Affordability Worksheet criterion.
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