You are a loan officer and a first-time home buyer has requested that you help her determine how much she can afford to take out as a loan to help purchase a home. She is currently renting an apartment and has presented to you the following information for you to use in your analysis of her financial position:

Gross annual income: $56,000 Auto lease payment: $425/mth Credit card minimum payment: $80/mth (Owes $4,200) Student loan payments: $225/mth Current utility payments: $135/mth on average Health insurance costs: $200/mth Auto insurance costs: $280/mth Grocery/food costs: $400/mth Dividend income from Stocks: $600/qtr Gasoline costs: $225/mth Miscellaneous living expenses: $500/mth Estimated Federal Income Taxes: $4,000/year Estimated State Income Taxes: $2,200/year Estimated payroll taxes: $4,800/year Property taxes for new home: $2,400 annual estimate Homeowners insurance for new home: $600 annual estimate

The borrower has strong credit and has sufficient cash in the bank to pay for a down payment of 20% as well as any closing costs. The borrower has sufficient cash reserves to pay up to 2 discount points to lower her rate but only intends on staying in the home for 5 year or less.

Programs that are available for you to consider for the borrower include the following:

3/1 ARM at an initial rate of 3.0% (30-year amortization) 5/1 ARM at an initial rate of 3.25% (30-year amortization) 30-year fixed rate note at 4.0% 15-year fixed rate note at 3.5%

Each discount point paid would lower the 3/1 ARM and the 15-year Fixed Rate note by 0.375% and the 5/1 ARM and 30-year Fixed Rate note by 0.25%

Given the information above, please determine 1) how much of a loan would this borrower qualify for under each loan program above if the 28/36 rule is applied?, 2) which of the programs do you think would be best for this borrower, and why? and 3) (Here is the bonus for 10 points you can skip this part if you wish) where is there wiggle room in your calculations and what could you consider doing to help the borrower qualify for a larger loan?