Chapter 9 Solutions

# Chapter 9 Solutions - Chapter 9 Solutions 1 a Applying a 28...

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Chapter 9 Solutions 1. a. Applying a 28 percent front-end ratio (.28 x \$57,000) = \$15,960 , the Jensens qualify for a mortgage requiring total annual expenditures of less than \$15,960. Their yearly housing costs would be [12(\$851 + \$60) + \$110 + \$450] = \$11,492 . In addition, their monthly gross income of \$4,750 is more than the 36 percent back-end ratio of (.36 x \$57,000)/12 = \$1,710. Their monthly debt payments would be [\$851 + \$60 + \$225 + (\$110 + \$450)/12] = \$1,182.67 . This is true even assuming the lender would require the \$275 per month homeowner’s fee to also be included in the calculations as a housing debt. Including all housing-related costs, the purchase of the condo would take [\$851 + \$60 + \$275 + \$160 + (\$110 + \$450)/12] = \$1,392.67 from their \$4,100 monthly take-home income compared to their current monthly housing expenditures of (\$880 + \$130 + \$34) = \$1,044 Walt and Mary have enough savings and investments (\$39,000) to make a \$24,000 down payment and pay \$3,200 closing costs. Based on the rules of thumb and their available savings, Walt and Mary can afford this house. However, their budget may seem tight, especially during the next 10 months until the \$225 per month installment debt is paid off. b. Walt and Mary’s monthly housing costs are lower as renters than they would be if they purchased this condo. As renters, they pay (880+130+34) = \$1,044 a month for rent, utilities, and insurance. Their monthly costs as condo owners would be (851+(110+ 450)/12 +60+275+160) =

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Chapter 9 Solutions - Chapter 9 Solutions 1 a Applying a 28...

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