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12. Can I afford this home? - Part 2 Can Beth and Andrew afford this home using the installment debt loan criterion? Next week, your friends Beth and Andrew 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 $125,000. 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, Beth and Andrew also collected the following information: . Their financial records report a combined gross before tax annual income of $105,000 and current (pre-mortgage) installment loan, credit card, and car loan debt of $1,531 per month . Their property taxes and homeowner's insurance policy are expected to cost $1,563 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 $32,500 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 33% to a maximum of 38% 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. Round your percentage answer to two decimal places.) MAXIMUM AFFORDABLE MORTGAGE LOAN FORMULA Assignment: Chapter 05 Making Automobile and Housing Decisions i = interest rate N = number of years High Value Low Value Amount % Home Affordability Worksheet Based on Installment Payments and Monthly Income 1. Annual income 2. Monthly income 3. Existing monthly installment payments 4. Existing monthly installment payments as percentage of monthly income (%) 5. Lender's monthly installment loan affordability ratio 6. Maximum amount of total affordable installment debt 7. Maximum monthly mortgage payment (PITI) affordable based on installment loan ratio 8. Estimated monthly property tax and Insurance payment 9. Maximum monthly loan payment (P and 1 only) 10. Expected interest rate 11. Planned loan maturity (years) 12. Maximum loan 38% 33% 7.5% 15 13. Required (20%) down payment 14. Maximum home price based on installment loan ratio ssignment: Chapter 05 Making Automobile and Housing Decisions www 94 38% 33% 1. Annual income 2. Monthly Income 3. Existing monthly installment payments 4. Existing monthly installment payments as percentage of monthly income (%) 5. Lender's monthly installment loan affordability ratio 6. Maximum amount of total affordable installment debt 7. Maximum monthly mortgage payment (PITI) affordable based on installment loan ratio 8. Estimated monthly property tax and insurance payment 9. Maximum monthly loan payment (P and I only) 10. Expected interest rate 11. Planned loan maturity (years) 12. Maximum loan 13. Required (20%) down payment 14. Maximum home price based on installment loan ratio III 7.596 15 Given these results, which statement regarding Beth and Andrew's mortgage qualification process and the purchase of their $125,000 target home is true? Beth and Andrew do not quality to purchase their $125,000 target home according to the Installment Debt Affordability Worksheet criterion Beth and Andrew quality to purchase their $125,000 target home according to the Installment Debt Affordability Worksheet criterion