8 After reviewing Matt and Jennifers personal statement of c

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?

Solution

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.