Question

In: Finance

Suppose an individual has $62,500 in annual income and considering a home that they intend to...

Suppose an individual has $62,500 in annual income and considering a home that they intend to finance with a $175,000 mortgage at 5% APR 30-year fixed rate loan, the real estate taxes and insurance are $2,500 per year, auto payments are $300/month, and student loans payments are $350/month.

What is the front-end ratio?

Solutions

Expert Solution

Calculating Monthly Payment,

Using TVM Calculation,

PMT = [PV = 175,000, FV = 0, N = 360, I = 0.05/12]

PMT = $939.44

PITI = 939.44 + 300 + 350 + 2,500/12

PITI = $1,797.77

Front end ratio = 1,797.77/(62,500/12)

Front end ratio = 0.316


Related Solutions

Suppose an individual has $62,500 in annual income and considering a home that they intend to...
Suppose an individual has $62,500 in annual income and considering a home that they intend to finance with a $175,000 mortgage at 5% APR 30-year fixed rate loan, the real estate taxes and insurance are $2,500 per year, auto payments are $300/month, and student loans payments are $350/month. (1) Calculate the two qualification ratios. (2) Would this individual qualify for this loan using a standard 28/36 ratio criteria? Please show work.
Sam has an annual income of $78,000 and wants to buy a home. He will need...
Sam has an annual income of $78,000 and wants to buy a home. He will need a home mortgage loan to do that. Current mortgage interest rates are 6% for a 30 year loan. Given the type of home he would like to buy, annual real estate taxes and homeowner’s insurance would be about $4,800 and $1,500, respectively. Given the above facts, and using a 36 percent back-end ratio, what total monthly mortgage loan payments (including taxes and insurance, i.e.,...
(b) Suppose that an individual earns an income of $280. If there is an income maintenance...
(b) Suppose that an individual earns an income of $280. If there is an income maintenance program where the income guarantee is $300 and the benefit reduction rate is 60. What is their level of subsidy? Answer: (c) What is the basis for the backward-bending shape of the labor supply curve and how have neoclassical economists sought to integrate income and substitution effects into the labor supply curve? Answer:
Suppose the home firm is considering whether to enter the foreign market. Assume that the home...
Suppose the home firm is considering whether to enter the foreign market. Assume that the home firm has the following costs and demand: Fixed costs = $400 Marginal costs = $13 per unit Local price = $25 Local quantity = 20 Export price = $26 Export quantity = 20 a. What is the firm’s average cost from selling only in the local market? b. Calculate the firm’s profit from selling (i) just to Home’s market; (ii) to both markets. c....
1. Suppose an individual considering purchasing health insurance has a 10% chance of developing a condition...
1. Suppose an individual considering purchasing health insurance has a 10% chance of developing a condition that costs $50,000 to treat. The individual has initial disposable income of $90,000 and is risk averse, with utility over final disposable income given by v ( I ) = sq root I. a) What is the highest premium this individual is willing to pay for an insurance policy that reimburses them $50,000 if they need treatment? (20 points) b) Now suppose that indiviudals...
The Simpson’s are considering the purchase of a home. They currently have a combined annual gross...
The Simpson’s are considering the purchase of a home. They currently have a combined annual gross income of $68,000. Current Monthly Expenses are as follows: Car Payment $320 Credit Card$100 Student Loan $220 Their proposed mortgage payment (p&i) will be $820 per month, with an additional $70 per month for private mortgage insurance (PMI).Annual property taxes and homeowner’s insurance are $1,800 and $1,200 respectively. Complete the below worksheet to calculate the front end and back end ratios. Gross Monthly Income...
An individual has three umbrellas, some at his office, and some at home. If he is...
An individual has three umbrellas, some at his office, and some at home. If he is leaving home in the morning (or leaving work at night) and it is raining, he will take an umbrella, if there is one there. Otherwise, he gets wet. Assume that, independent of the past, it rains on each trip with probability 0.2. To formulate a Markov chain, let Xn be the number of umbrellas at his current location “before” he starts his n-th trip....
Suppose an individual has 40 hours to work. Suppose also the individ- ual has a net...
Suppose an individual has 40 hours to work. Suppose also the individ- ual has a net wealth outside the labor market of 100$. Suppose the wage rate is equal to 20 $ per hour. Graph the budget constraint. Suppose the marginal rate of substitution between consumption (C) and leisure (l) is equal to c/(l+10). What will a utility maximizing consumer choice between labor and consumption be? Suppose the wage falls to $5 per hour. What is the new choice of...
Suppose the Baumol-tobin model of money demand is correct. The typical person has annual money income...
Suppose the Baumol-tobin model of money demand is correct. The typical person has annual money income of $80,000, the product of 40,000 real income and a price level of 2. The brokerage fee is $1. The money supply per person is $1000. What is the value of the nominal interest rate? why? Now suppose the fed wants to reduce nominal interest rate to 2% (.02). What will they need to do to the money supply - by how much and...
Assume that an individual has the following relationship between income and utility.
Q1) Assume that an individual has the following relationship between income and utility.Income   Utility30,000 4040,000 18050,000 25060,000 28070,000 300The individual has the income 70,000. With probability 0,5 an accident occurs and she has to pay 40,000. With probability 0,5 the accident does not occur and she keeps 70,000. She can also buy a full insurance. Assume that the price of the insurance is fair. Will the individual buy the insurance? Explain. Is it possible that she wants to pay more...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT