Question

In the initial phone call, they offer up to tell you that they are looking at a two bedroom home with the a sales price of $150,000.00. They have $18,000.00 to put towards down payment, closing costs and prepaid expenses.

Through interviewing Pat and Kris, you determine that they are planning on being in the house a maximum of 7 years. As a teacher, Kris has a contract for $45,000 per year. Pat being self employed shows on tax returns and income of $30,000 per year. They have currently monthly debt of $823 per month that includes a car lease and credit card bills. Kris also has a Student loan for $42,000.00 that is in deferment for the next three months. It will have a payment of $323.00 per month when out of deferment.
What would their maximum loan payment be based on the parameters provided based on a maximum debt to income ratio of 43%?
What would their maximum allowable debt be based on a maximum debt to income ratio of 43%?
The lender has maximum qualifying ratios of 28% for housing to income and 43% for total debt to income. What would their maximum loan payment (PITI) qualify for (after taking into account their other monthly debts)?
Using the following numbers to answer the question "Would Pat and Kris be able to purchase this house?" (explain your reasoning)
761 Principal and Interest
150.00 Monthly Homeowners Insurance
165.00 Monthly Taxes
121.00 Monthly Private Mortgage Insurance
Don't forget to take into account other monthly debt obligations.

Answer 1

Okay, based on the information provided, here are the answers to the questions:

What would their maximum loan payment be based on the parameters provided based on a maximum debt to income ratio of 43%?

$43% of $75,000 annual income = $32,250

$32,250 / 12 months = $2,687 maximum monthly debt payment

What would their maximum allowable debt be based on a maximum debt to income ratio of 43%?

$75,000 annual income

43% of $75,000 = $32,250 maximum allowable debt

What would their maximum loan payment (PITI) qualify for (after taking into account their other monthly debts)?

Other monthly debts:

$823 (car lease/credit cards)

$323 (student loan) = $1,146

$2,687 maximum payment

-$1,146 other debts

$1,541 maximum PITI payment they can qualify for

Using the following numbers to answer the question "Would Pat and Kris be able to purchase this house?" (explain your reasoning)

761 Principal and Interest

150.00 Monthly Homeowners Insurance

165.00 Monthly Taxes

121.00 Monthly Private Mortgage Insurance

Total PITI payment = $761 + $150 + $165 + $121 = $1,197

No, Pat and Kris likely would not be able to purchase the $150,000 home with a PITI payment of $1,197 based on the guidelines. Their maximum qualifying PITI is $1,541 according to the calculations. The $1,197 PITI payment for the home would put them over the 43% debt to income ratio limit.

Does this help explain the analyses and conclusions? Let me know if you have any other questions!