Question

. Mortgage Affordability. Seth and Alexandra Moore of Elk Grove Village, Illinois, have an annual income of $110,000 and want to buy a home. Currently, mortgage rates are 5 percent. The Moores want to take out a mortgage for 30 years. Real estate taxes are estimated to be $4,800 per year for homes similar to what they would like to buy, and homeowner's insurance would be about $1,500 per year. (a) Using a 28 percent front end ratio, what are the total monthly expenditures for which they would qualify

Answer 1

Answer:

Solution

Gross annual income = $110,000

Gloss monthly income = $110,000 / 12

Gross monthly income = $9,166.67(Rounded off to $9,167)

Real estate taxes annual =$4,800

Monthly real estate taxes = $4,800 / 12

Monthly real estate taxes =$400

Yearly homeowner insurance = $1,500

Monthly payment = $1,500 / 12

Monthly payment = $125

Front End Ratio = Total Housing Expense / Gross Income  

Monthly  Housing Expense = 0.28 × Gross Income  

Monthly  Housing Expense = 0.28 × 9,166.67

Monthly  Housing Expense = 2,566.67

Yearly housing expenses = 12 × 2566.67

Yearly housing expenses = 30,800.4

Hence, the total yearly and monthly housing expenses are $2567 (Rounded off) and $30800 (Rounded off) respectively.