Question 1200962: The Ability-to-Repay Rule, adopted by the Consumer Financial Protection Bureau in compliance with the Dodd-Frank Wall Street Reform and Consumer Protection Act, requires lenders to determine whether a consumer applying for a Qualified Mortgage can afford to repay the loan. One of the requirements is that the borrower's total monthly debt (including property taxes) cannot exceed 43% of the borrower's monthly pre-tax income.† Suppose that the Foleys have applied for a $300,000 Qualified Mortgage with an interest rate of 5%/year compounded monthly and a term of 30 years. The property tax on the home they wish to purchase is $6000/year. If the Foleys' annual income is $72,000, will they qualify for the mortgage? (Round your answers to two decimal places.)
The Foley's monthly payment would be:
Their monthly income is:
Thus, provided they do not have other significant debts, the Foley's
Qualify / Do not qualify
for the mortgage.
Answer by Theo(13342)   (Show Source):
You can put this solution on YOUR website! borrower's total monthly debt, including property taxes, cannot exceed 43% of the borrower's pre-tax monthly income.
the foley's pre-tax annual income is 72,000.
divide that by 12 to get a pre-tax monthly income of 6,000.
the property tax on the home they wish to purchase is 6,000 per year.
divide that by 12 to get 500 per month.
the mortgage is 300,000 for 30 years at 5% per year compounded monthly.
the monthly payment required would be equal to 1,610.46.
add 500 to that to get 2,110.46 monthly payment required.
that covers the mortgage and the property tax.
their debt limit would be .43 * 6000 = 2580 per month.
since 2,110.46 is less than that, they can afford the house.
|
|
|
