You are shopping for a house and wonder what you can afford.

1. Banks look at collateral, creditworthiness and capacity (ability to pay) when making loans. Assume you have sufficient downpayment and credit score. Your bank has a requirement of 28% housing expense ratio and your gross monthly income is $7,000. How much can you afford to pay in principal, interest, taxes an insurance (PITI) each month?

2. You are looking to purchase a new home that is listed at $403,200. You have saved enough to make a 20% downpayment. You are talking to a lender about a 4.5% loan for 30 years that amortizes monthly. What is your monthly debt service (this includes principal and interest)?

NOTE: Use both of the tools provided to make this calculation: the amortization schedule and the loan constant chart which are both inside this dropbox.

3. Taxes are $302.40 per month and insurance is $75 per month. If you add these to your debt service, what is your total monthly PITI?

4. Will the bank make this loan to you? Why or why not?

5. Now assume interest rates drop to 4%, but all other assumptions are the same. What is your monthly PITI and will the bank make this loan? Why or why not?

Do your calculations and then summarize them in a Word document that contains your answers and explains how you did your calculations. You should also upload your amortization schedule. Make sure you provide all of your back up--you will not get credit on this assignment if you merely answer the questions, but do not explain how you got your answers.