Next week, your friends Ana and Yakov 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, theyve asked for your help in completing the Home Affordability Worksheet that follows.

To assist in the preparation of the worksheet, Ana and Yakov 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 homeowners 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 homes 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= Max. Monthly Loan Payment* (1- (1/(1+i/12)^(128N)) where i= interest rate, N= number of years

Based on Monthly Income:

*** Supply High Value & Low Value for each***

1. Annual income

2. Monthly income

3. Lenders monthly income affordability ratio 30% 25%

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

Given these results, which statement regarding Ana and Yakovs mortgage qualification process and the purchas true? i = interest rate N = number of years

Ana and Yakov qualify to purchase their $215,000 target home according to the Monthly Income Affordability worksheet Criterion.

Ana and Yakov do not qualify to purchase their $215,000 target home according to the Monthly Income.