Question

Suppose your annual income is $50,000 and your lender will allow you to have a mortgage payment that is no more than 33% of your monthly income after making other debt payments and paying property taxes, which in your case amount to $500 per month. If the current 30-year mortgage rate is 5%, approximately how large a mortgage can you qualify for (assuming you have the required cash for the necessary down payment)?

a. $160,000

b. $161,000

c. $162,000

d. $163,000

e. none of the above

Answer 1

Annual Income = $50,000

Monthly income = 50000/12 = $4,166.67

Other expenses per month = $500

Monthly Payment on Mortgage = 0.33(4166.67 - 500)

Monthly Payment on Mortgage = $1,210

Time Period of Mortgage = 30 years = 360 months

Interest Rate = 5%

Calculating Present Value,

Using TVM Calculation,

PV = [FV = 0, T = 360, PMT = 1210, I = 0.05/12]

PV = $225,400.76

So,

Qualified Mortgage Amount = $225,400.76