Hi guys , could you please help me with this, thank you so much ! Seth and Cassi
ID: 2730457 • Letter: H
Question
Hi guys , could you please help me with this, thank you so much !
Seth and Cassie Moore of Holyoke, Massachusetts, have an annual income of $120,000 and want to buy a home. Currently, mortgage rates are 7 percent. The Moores want to take out a mortgage for 30 years. Real estate taxes are estimated to be $4800 per year for homes similar to what they would like to buy, and homeowner's insurance would be about $720 per year. Using a 28 percent front-end ratio, what are the total annual and monthly expenditures for which they would qualify? Using a 36 percent back-end ratio, what monthly mortgage payment (including taxes and insurance) could they afford given that they have an automobile loan payment of $470, a student loan payment of $350, and credit card payments of $250? If mortgage interest rates are around 7 percent and the Moores want a 30-year mortgage, use the information in the Did You Know box on page 244 to estimate how much they could borrow given your answer to part b.Explanation / Answer
a) Front-end ratio = Housing debts / Income
Annual expenditures:
0.28 = Housing debts / $120,000
Housing debts = $120,000 x 0.28 = $33,600
Annual expenditures = Annual income - Housing debts – Real estate taxes – homeowner’s insurance
=> $120,000 - $33,600 - $4,800 - $720 = $80,880
Monthly expenditures = Annul expenditures / 12
=> $80,880 / 12 = $6,740
b) Back-end ratio = All debts / monthly income
0.36 = (Mortgage payment including tax & insurance + automobile loan payments + students loan payments + credit card payments) / monthly income
0.36 = (mortgage payment including tax & insurance + $470 + $350 + $250) / $10,000
Mortgage Payment including tax & insurance = $3,600 - $470 - $350 - $250 = $2,530
c) Amount can be borrowed = Pmt x ((1-((1+r)-n )) / r)
Payment per period (PMT) = $2,530
Interest Rate per period = 7%/12 = 0.583333%
Number of periods (n) = 30 x 12 = 360
Amount = $2,530 x ((1-((1+0.00583333)-360)) / 0.00583333) = $380,278.3
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