Question

1)You want to buy a house and wonder what you can afford. Banks look at collateral,...

1)You want to buy a house and wonder what you can afford. Banks look at collateral, creditworthiness and capacity (ability to pay) when making loans. Assume you have sufficient down payment and credit score. Your bank has a requirement of 28% housing expense ratio and your gross annual income is $69,000.

Based on those assumptions, how much can you afford to pay in total housing costs each month?

2) You are looking to purchase a new home that is listed at $324,000. You intend to make an offer to buy this house at the full listed price. You have saved enough to make a 20% down payment, so the loan amount will be 80% of the purchase price. You are talking to a lender about a 30-year, fixed rate, amortizing loan. The mortgage constant is 0.05305.  What is the amount of your monthly debt service?

3) Lenders look at PITI, which is Principal, Interest, Taxes, and Insurance. You calculated debt service (Principal and Interest) in the previous question. Now assume that property taxes are $2,400 per year and insurance is $60 per month. Based on these assumptions and the debt service amount you calculated in the previous question, what is your total monthly PITI?

You have now calculated what you can afford to spend on housing in Q1 and what this house will really cost (PITI) in Q3. Based on these calculations, will the bank make you this loan? Why or why not? If not, what is the concern?

Homework Answers

Answer #1

formulas Used:-

gross annual income 69000
total home value 324000
down payment =D3*0.2
Loan Value =D3-D4
Annual Rate 0.05305
tenure (years) 30
monthly debt service =PMT(D6/12,D7*12,-D5)
tax (monthly) 200
Insurance 60
total monthly PITI =D8+D9+D10
monthly housing Exp. Allocation =D2*28%/12

bank will not make a Loan because the Total montly PITI requirement is $1700.01 and according to his income he can only spend $1610 on housing expeces hence due to not having ability to repay bank will not grant the loan.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You are shopping for a house and wonder what you can afford. Banks look at collateral,...
You are shopping for a house and wonder what you can afford. 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 $5,450. How much can you afford to pay in principal, interest, taxes an insurance (PITI) each month? Show how you calculated how much you can afford to spend on a home...
1.) You want to buy a house in Hermosa Beach CA, but you can only afford...
1.) You want to buy a house in Hermosa Beach CA, but you can only afford to make monthly payments of $7,100. The interest rate on mortgages right now is 4.25% p.a. with monthly compounding (APR), fixed for 30 years, with monthly payments. You have $155,000 saved to use as a downpayment. What is the most that you can afford to pay for a house (ignoring closing costs, property taxes, etc..)? Answer: $1,598,265.76 2.) Under the same assumptions described in...
Estimate the maximum house value you can afford to buy. Assume the mortgage is fixed rate,...
Estimate the maximum house value you can afford to buy. Assume the mortgage is fixed rate, 30-year maturity, 80% LTV, with no points. The interest rate is quoted is 3.5% with monthly payments. The property tax rate in the city is 0.7% per year based on property value; the hazard insurance premium is 0.5% per year based on property value, and that on average you should consider $50 per month for maintenance. Determine the required monthly payment for the mortgage...
you want to buy a house that costs $380612.98, but all you can afford to pay...
you want to buy a house that costs $380612.98, but all you can afford to pay on a weekly mortgage for the house is $4596.87 per week for 29 years. thanks bank quoted you a mortgage rate of 5.05% to buy this house without putting any money down or having a balance owing at the end of the mortgage, you would have get the bank to lend you money at a lowest rate. what rate would they have to quote...
Develop a spreadsheet model to determine how much a person or a couple can afford to...
Develop a spreadsheet model to determine how much a person or a couple can afford to spend on a house. Lender guidelines suggest that the allowable monthly housing expenditure should be no more than 28% of monthly gross income. From this, you must subtract total nonmortgage housing expenses, which would include insurance and property taxes and any other additional expenses. This defines the affordable monthly mortgage payment. In addition, guidelines also suggest that total affordable monthly debt payments, including housing...
You friend Stephen is planning to buy a house. He believes he can afford a mortgage...
You friend Stephen is planning to buy a house. He believes he can afford a mortgage payment of $3,750 per month. The current interest rate on a 30 year mortgage is 3.25% per year. What is the largest mortgage he can afford based on a 30 year loan if the lender requires a 20% downpayment? How much does he need in down payment for the most expensive house he can afford? ]
Suppose you take out a 30-year mortgage for a house that costs $496,845. Assume the following:...
Suppose you take out a 30-year mortgage for a house that costs $496,845. Assume the following: The annual interest rate on the mortgage is 3.9%. The bank requires a minimum down payment of 16% at the time of the loan. The annual property tax is 2.1% of the cost of the house. The annual homeowner's insurance is 0.6% of the cost of the house. There is no PMI If you make the minimum down payment, what will your monthly PITI...
You want to buy a house that costs $320,000. You will make a down payment equal...
You want to buy a house that costs $320,000. You will make a down payment equal to 20 percent of the price of the house and finance the remainder with a loan that has an interest rate of 4.55 percent compounded monthly. If the loan is for 30 years, what are your monthly mortgage payments?
You want to buy a house that costs $255,000. You will make a down payment equal...
You want to buy a house that costs $255,000. You will make a down payment equal to 20 percent of the price of the house and finance the remainder with a loan that has an interest rate of 5.37 percent compounded monthly. If the loan is for 30 years, what are your monthly mortgage payments?
Vivian wants to buy a house. The house she wants is listed for $350,000. What if...
Vivian wants to buy a house. The house she wants is listed for $350,000. What if Vivian can only pay a 15% down payment, what would her first monthly payment be for the 30-year mortgage at 3.75%? (Assume PMI insurance cost is 1% of the loan amount per year.)
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT