Reference no: EM132419813

Problem: Your bank has a mortgage loan department. It has been suggested that this area of the bank is not competitive in terms of interest rates and option available to homebuyers. You have been given an opportunity to evaluate the products offered by your bank and how they compare to alternatives that homebuyers are considering when selecting a mortgage company.

You decided that the best way of learning how your bank's mortgage department works is to experience the mortgage application process first. The following information applies to your mortgage qualification process:

Monthly Income: $6,000

Existing debts $400

Property tax rate 1% (annual-based of home value)

Home insurance 0.5% (annual-based on home value)

Home value $200,000

You are in acceptable credit risk, with a respectable credit history. Assume your bank offers the following mortgage terms and rates:

Terms of loan: 15 years

Down-payment required 10%

Closing costs: Fees will be paid from savings-You don't use it in your calculations.

Originating fees of 2%

Lender fees of $300

Credit report cost of $20

Escrow fee of $300

Title insurance fee of $400

Recording fee of $25

Appraisal report of $300

Survey fee of $200

Termite Infestation Report of $50

15 year mortgage rate 6.5%

The bank has a payment-to-income (PIT) ratio of 28%

Using excel or internet mortgage calculator answer the following questions:

1. How much do you qualify to borrow assume 28% PIT?

2. If instead bank uses PTI ratio of 33%, how much do you qualify to borrow?