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2. Mortgage Affordability. Seth and Alexandra Moore of Elk Grove Village, Illinois, have an annual income...

2. 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?

(b) Using a 36 percent back-end ratio, what monthly mortgage payment (including taxes and insurance) could they afford given that they have an automobile loan payment of $470, a student loan payment of $350, and credit card payments of $250?

(c) Using a 36 percent back-end ratio, if the Moores had zero debt, what monthly mortgage payment (including taxes and insurance) could they afford?

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jeff jeffy answered 1 year ago
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