Question

You are a loan officer at the West Elm Savings and Loan. Mr. and Mrs. Brady are in your office to apply for a mortgage loan on a house they want to buy. The house has a market value of $170,000. Your bank requires 1/5
of the market value as a down payment.
(a)
What is the amount (in $) of the down payment?
$
(b)
What is the amount (in $) of the mortgage for which the Bradys are applying?
$
(c)
Your bank offers the Bradys a 30 year mortgage with a rate of 5%. At that rate, the monthly payments for principal and interest on the loan will be $5.37 for every $1,000 financed. What is the amount (in $) of the principal and interest portion of the Bradys' monthly payment?
$
(d)
What is the total amount (in $) of interest that will be paid over the life of the loan?
$
(e)
Your bank also requires that the monthly mortgage payments include property tax and homeowners insurance payments. If the property tax is $1,710 per year and the property insurance is $1,458 per year, what is the total monthly payment (in $) for PITI (principal, interest, taxes, and insurance)?
$
(f)
To qualify for the loan, bank rules state that mortgage payments cannot exceed 1/4
of the combined monthly income of the family. If the Bradys earn $3,750 per month, will they qualify for this loan?
Yes, they will qualify.
No, they will not qualify.

(g)
What monthly income (in $) would be required to qualify for this size mortgage payment?
$

Answer 1

Answer:

West Elm Savings and Loan

a) The amount of the down payment is:

= $34,000

b) The amount of the mortgage for which the Bradys are applying is:

= $170,000.

c) The amount of the principal of $136,000 ($170,000 - $34,000) and the interest portion of the monthly payment by the Brady's is:

= $730.32

d. The total amount of interest that will be paid over the life of the loan is:

= $126,915.20

e) Total monthly payment = $994.32

f) No, they will not qualify.

g) The monthly income that would be required to qualify for this size of mortgage payment is:

= $3,977.28

Step-by-step explanation:

a) Data and Calculations:

Market value of mortgage house = $170,000

Required down payment = 1/5 or 20%

a) The amount of the down payment = $34,000 ($170,000 * 20%)

b) The amount of the mortgage for which the Bradys are applying is = $170,000.

c) Interest on the loan = $5.37 for every $1,000

The amount of the principal of $136,000 ($170,000 - $34,000) and interest portion of the monthly payment by the Brady's = $730.32 ($5.37 * $136,000/$1,000)

d. The total amount of interest that will be paid over the life of the loan is:

= $126,915.20 ($262,915.20 - $136,000)

Sum of all periodic payments = $262,915.20 = ($730.32 * 12 * 30)

e) Annual Property tax =         $1,710

Annual Property insurance     1,458

Total additional annual pyts $3,168

Monthly additional costs = $264 ($3,168/12)

Total monthly payment = $994.32 ($730.32 + $264)

f) Bradys' combined monthly income = $3,750

Qualification threshold = $937.50 ($3,750/4)

No, they will not qualify.

g) The monthly income that would be required to qualify for this size of mortgage payment is:

= $3,977.28 ($994.32/0.25)