8. After reviewing Matt and Jennifer\'s personal statement of cash flows, the fo
ID: 2826505 • Letter: 8
Question
8. After reviewing Matt and Jennifer's personal statement of cash flows, the following information was determined:
Mortgage principal $5,467
Mortgage interest $21,500
Property tax $2,000
Homeowners insurance premium $1,800
The couple has monthly gross income of $9,500. Has this couple taken on debt in excess of what is reasonable for their income, according to benchmarks set by mortgage lenders?
9. In addition to the information given in Question 8, Matt and Jennifer had other annual debt payments of $11,600. Calculate the monthly housing costs and other debt repayments to monthly gross income ratio, Do Matt and Jennifer qualify for a mortgage loan?
Explanation / Answer
The conventional mortgage lenders allow a 28/36 ratio
Front end load = 5467+21500+2000+1800 = 30767
GTI= 9500*12 = 114000
Front end debt ratio = 30767/114000 = 26.99%
This is less than the maximum load. Hence they have not taken up excesss debt.
9: Monthly costs to Monthly GTI = (30767+ 11600)/12 divided by 9600
= 36.78%
Since 36% is the maximum allowable limit for back end load, they will not qualify for a mortgage.
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