Question

Sally buys a house for $400,000 and obtains a 90% mortgage. Obtains a rate of 3.75% on a 30 year fixed rate mortgage. Due to the high leverage, she must pay 0.50% premium on the rate and Up front mortgage Insurance Premium 0.50% on the mortgage balance. The annual RE Taxes is $7,500 and Insurance is $1,500.                                                                           

She also has other monthly obligations as follows: Credit Cards $1,000, Student Loans $750, and Car Loan $400

The bank uses a Front Ratio of 28.00%,   and a Back Ratio of 43%                                                              

What is the annual income required to under these circumstances.

Answer 1

Mortgage amt = $400,000*90% = $360,000

rate = 3.75 % + (.5%*3.75)= 3.75% + .01875 = 3.76875%

Interest amount = 360000 *3.76875% = $13568

Recurring Monthly expenses = credit card + student loans + car loan + interest = 1000+750+400+13568 = 15718

upfront premium= 360000*.5% = $ 1800

Expenses on account of purchasing house = interest + upfront mortgage amt + annual re taxes + insurance

= 13568+1800+7500+1500=24368

Front Ratio = Housing Expenses/ Monthly income

28%=24368/ Monthly Income

Therefore, Monthly income for front ratio would be = 24368/28% = $87029

Back ratio=Recurring Exp/Monthly income

43%= 15718/Monthly Income

Monthly Income for back ratio = 15718/43% = $36553

So, desired Monthly income would be higher of two, i.e. $ 87029 or $ 36553

Monthly Income = $ 87029