Question

5. Jim has an annual income of $300,000 Jim is looking to buy a house with monthly property taxes of $140 and monthly homeowner's insurance of $70 Jim has $178 in monthly student loan payments. Apple bank has a maximum front end DTI limit of 28% and a maximum back end DTI limit of 36%. Given both limits, what is the most they will allow Jim to spend on a monthly mortgage payment? 6. Jim has an annual income of $300,000. Jim is looking to buy a house with monthly property taxes of $140 and monthly homeowner's insurance of $70 Jim has $178 in monthly student loan payments Apple bank has a maximum front end DTI limit of 28% and a maximum back end DTI limit of 36%. Both limits must be satisfied. Apple bank is offering a fully amortizing 30 year FRM at an annual rate of 4.5%, with monthly payments, compounded monthly What is the biggest loan Jim can get?

Answer 1

5). Annual income = 300,000 so monthly income = 300,000/12 = 25,000

Front end DTI = (mortgage payment + property tax + insurance)/monthly gross income

Back end DTI = (mortgage payment + property tax + insurance + student loan)/monthly gross income

Using front end DTI, mortgage payment = front end DTI*monthly gross income - property tax - insurance

mortgage payment = (28%*25,000) - 140 - 70 = 6,790

Using back end DTI, mortgage payment = back end DTI*monthly gross income - property tax - insurance - student loan

mortgage payment = (36%*25,000) - 140 - 70 -178 = 8,612

In order to satisfy both limits, the lower limit has to be satisfied, so the maximum monthly mortgage payment, he can pay is $6,790.

6). As calculated in Ans.5) above, the maximum monthly mortgage payment is $6,790.

PMT = -6,790; N = 30*12 = 360; rate = 4.5%/12 = 0.375%, solve for PV.

Maximum loan amount = $1,340,082.27