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| Name: | Sample Student | | | | Date: | June 3, 2019 | | | | | | | 24 |
| Housing Affordability and Mortgage Qualification |
| Purpose: To estimate the amount of affordable mortgage payment, mortgage amount, and home purchase price. |
| Financial Planning Activities: Enter the amounts requested to estimate the amount of affordable mortgage payment, mortgage amount, and home purchase price. |
| Suggested Websites: | | www.realestate.com | | homeloanlearningcenter.com | | mtgprofessor.com |
| Suggested App: | | Mortgage Calculator |
| | | | | | | | | | | | | | Your Personal Financial Plan |
| | | | | | | | Debt-to-Income Ratios |
| | | | | | Method: | | Front-end ratio (28%)** | | Back-end ratio (36%)** |
| Step 1 |
| Determine your monthly gross income (annual income divided by 12). |
| Enter annual income: | | $48,000 | ÷ | 12 = | | | $4,000.00 | | $4,000.00 |
| Step 2 |
| With a down payment of at least 10 percent, lenders use 28 percent (front-end ratio) of monthly gross income as a guideline for TIPI (taxes, insurance, principal, and interest), and 36 percent (back-end ratio) of monthly gross income as a guideline for TIPI plus other debt payments. | | | | | | X | 0.28 | | 0.36 |
| | | | | | | | $1,120.00 | | $1,440.00 |
| Step 3 |
| Subtract other monthly debt payments (e.g., payments on an auto loan) | | | | | | — | ——— | | $380.00 |
| | | and |
| an estimate of the monthly costs of property taxes and homeowner’s insurance. | | | | | | — | $300.00 | | $300.00 |
| Affordable monthly mortgage payment | | | | >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> | | | $820.00 | | $760.00 |
| Step 4 |
| Divide this amount by the monthly mortgage payment per $1,000 based on current mortgage rates—an 8 percent, 30-year loan, for example (see Exhibit 7–7)—and multiply by $1,000. | | | | | | ÷ | 7.34000 | | 7.34000 |
| | | | | | | X | $1,000.00 | | $1,000.00 |
| Monthly mortgage payment factor (exact) per each $1,000 in principal: | | | Enter rate: | 8.00% | Exact factor is |
| | | | Enter term (years): | 30 | 7.33765 |
| Affordable mortgage amount | | | >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> | | | | $111,717 | | $103,542 |
| Step 5 |
| Divide your affordable mortgage amount by 1 minus the fractional portion of your down payment (e.g., 1 - 0.1 with a 10 percent down payment). |
| Enter down payment (%'age): | | | 10.00% | | | ÷ | 0.90 | | 0.90 |
| Affordable home purchase price | | | >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> | | | | $124,130 | | $115,047 |
| ** Note: The two ratios lending institutions use (step 2) and other loan requirements are likely to vary based on a variety of factors, including the type of mortgage, the amount of the down payment, your income level, credit score, and current interest rates. If you have other debts, lenders will calculate both ratios and then use the one that allows you greater flexibility in borrowing. |
| What's Next for Your Personal Financial Plan? |
| * Identify actions you might need to take to qualify for a mortgage. |
| * Discuss your mortgage qualifications with a mortgage broker or other lender. |
BAEK
KDH_FPF5e_PFP_Ch_07.updated.xls
