Next week, your friends Simone and Rajiv want to apply to the Fourth Global Bank for a mortgage loan. They are considering the purchase of a home that is expected to cost $$430,000.$ Given your knowledge of personal finance, they$$ve asked for your help in completing the Home Affordability Worksheet that follows.

To assist in the preparation of the worksheet, Simone and Rajiv also collected the following information:

$$ Their financial records report a combined gross before$-$tax annual income of $$157,500$ and current $($premortgage$)$ installment loan, credit card, and car loan debt of $$1,641$ per month.

$$ Their property taxes and homeowner$$s insurance policy are expected to cost $$3,225$ 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.

$$ They have accumulated savings of $$93,500$ 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 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 Payment$\backslash$times $11(1+$i$12)(12\backslash$times N$)$i$12$

where

i

$=$

interest rate

N

$=$

number of years

Home Affordability Worksheet

Based on Monthly Income High Value Low Value Amount

$1.$ Annual income

$2.$ Monthly income

$3.$ Lender$$s 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 $7\mathrm{.}5\%$

$8.$ Planned loan maturity $($years$)15$

$9.$ 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 Simone and Rajiv$$s mortgage qualification process and the purchase of their $$430,000$ target home is true?

Simone and Rajiv do not qualify to purchase their $$430,000$ target home according to the Monthly Income Affordability Worksheet criterion.

Simone and Rajiv qualify to purchase their $$430,000$ target home according to the Monthly Income Affordability Worksheet criterion.