The Smith family has found a house that they like but they do not know if they q

Question

The Smith family has found a house that they like but they do not know if they qualify for a mortgage. Their gross monthly income is $3900. They are currently paying off a new car, whose monthly payments are $260. After being very careful, they have paid off all of their credit card debt.

The mortgage they want from their credit union is a 15-year fixed mortgage for $110000 with an interest rate of 5.6%. After looking up local tax information and talking to their insurance agent, the family estimates that the monthly cost for insurance and taxes on the house is $262.

The credit union uses the 28/36 Rule to determine whether an applicant qualifies for a mortgage. Does the Smith family qualify for this mortgage?


Please solve this for me, and explain how to get the answer for questions like these....

Explanation / Answer

Smith family gross monthly income =$3900.

car's monthly payment=$260

Mortgage payment is $110000 for 5.6% interest rate for 15 years.

monthly taxes on house and insurance rates=$262

As for 28/36 rule,

Max of 28% of income on household activities including mortgage and homeinsurance, taxes.

Max of 36% of income on debt service,including and otherdebt such as carloans.

so here ,

28% of income =(3900/100)*28=$1092.

36% of income =(3900/100)*36=$1404

As smith family has to pay some "x" amount per month on household which couldnot exceed $1092 as per rule.

so ,

total mortgage [ayment=110000+(110000/100)*5.6

=$116160

As $116160 has to be paid in 15 years .so ,per month they have to pay=$116160/(15*12)

=$645.33

And $262 for other taxes and insurances per month

so on adding we get =645.33+262

=907.33

Hence $907.33 cannot exceed $1092 which they can spend accornding to 28/36 rule.

and

$907.33+car monthly payment=$907.33+260=$1167.33

Hence $1167.33 cannot exceed $1404 which they can spend according to 28/36 rule.

So,

Smith's familty is qualified for mortgage.

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