Question

Jim and Sue have a combined annual income of $96,400. They can get a 20-year, 90% conventional loan at 8.75% with a monthly payment of $8.84 per $1000 borrowed. A house they like has annual taxes of $3200 and can be insured for $1500 a year. If the lender uses 28/36 qualifying ratios and they have no other debt, how much financing can Jim and Sue qualify for

Answer 1

She can afford a maximum loan amount of $2,725,714.29. After 30 years, Joanna will end up paying a total of $4,320,000.

Step-by-step explanation:

To calculate the maximum loan Joanna can afford, we can use the present value formula:

PV = PMT * ((1 - (1 + r)^(-n)) / r)

Where PV is the maximum loan Joanna can afford, PMT is the annual payment she can afford ($12,000), r is the interest rate per period (4.2% divided by 12), and n is the total number of payment periods (30 years multiplied by 12). Plugging in the values, we get:

PV = $12,000 * ((1 - (1 + 0.042/12)^(-30*12)) / (0.042/12))

PV ≈ $12,000 * ((1 - 0.2272) / 0.0035)

PV ≈ $12,000 * (0.7728 / 0.0035)

PV ≈ $2,725,714.29

Therefore, Joanna can afford a maximum loan amount of approximately $2,725,714.29.

To calculate the total amount Joanna will end up paying after 30 years, we can use the formula:

Total Payment = PMT * (n * 12)

Plugging in the values, we get:

Total Payment = $12,000 * (30 * 12)

Total Payment = $4,320,000

Therefore, Joanna will end up paying a total of $4,320,000 after 30 years.

Answer 2

Jim and Sue can afford a monthly payment of $1,857.66 after taxes and insurance. Given the monthly payment rate of $8.84 per $1000 borrowed, they can qualify for approximately $210,245.60 in financing for their home purchase using the 28/36 qualifying ratios and no other debts.

Step-by-step explanation:

First, we need to calculate how much Jim and Sue can afford monthly for the mortgage payment. Using the 28/36 qualifying ratios, we can evaluate that 28% of their combined annual income is available for the mortgage, taxes, and insurance. Their combined annual income is $96,400, so 28% of that is $96,400 * 28% = $26,992 per year, which converts to about $2,249.33 per month ($26,992/12 months).

Annual taxes and insurance cost $3,200 and $1,500 respectively, adding up to $4,700 annually or about $391.67 monthly. Subtracting this amount from the monthly mortgage allocation gives us $2,249.33 - $391.67 = $1,857.66 available for the mortgage payment.

At a rate of $8.84 per $1000 borrowed, they can afford to make a monthly payment for a loan amount calculated as follows: $1,857.66/$8.84 = approximately 210.2456, and when multiplied by $1000, it equals approximately $210,245.60.

Hence, Jim and Sue can qualify for about $210,245.60 in financing for their home purchase, provided they have no other debts.