Reference no: EM132830838
Question - You are a loan officer and a first-time home buyer has requested that you help her determine how much she can afford to take out as a loan to help purchase a home. She is currently renting an apartment and has presented to you the following information for you to use in your analysis of her financial position:
Gross annual income: $56,000
Auto lease payment: $425/mth
Credit card minimum payment: $80/mth (Owes $4,200)
Student loan payments: $225/mth
Current utility payments: $135/mth on average
Health insurance costs: $200/mth
Auto insurance costs: $280/mth
Grocery/food costs: $400/mth
Dividend income from Stocks: $600/qtr
Gasoline costs: $225/mth
Miscellaneous living expenses: $500/mth
Estimated Federal Income Taxes: $4,000/year
Estimated State Income Taxes: $2,200/year
Estimated payroll taxes: $4,800/year
Property taxes for new home: $2,400 annual estimate
Homeowners insurance for new home: $600 annual estimate
The borrower has strong credit and has sufficient cash in the bank to pay for a down payment of 20% as well as any closing costs. The borrower has sufficient cash reserves to pay up to 2 discount points to lower her rate but only intends on staying in the home for 5 year or less.
Programs that are available for you to consider for the borrower include the following:
3/1 ARM at an initial rate of 3.0% (30-year amortization)
5/1 ARM at an initial rate of 3.25% (30-year amortization)
30-year fixed rate note at 4.0%
15-year fixed rate note at 3.5%
Each discount point paid would lower the 3/1 ARM and the 15-year Fixed Rate note by 0.375% and the 5/1 ARM and 30-year Fixed Rate note by 0.25%
Given the information above, please determine 1) how much of a loan would this borrower qualify for under each loan program above if the 28/36 rule is applied?, 2) which of the programs do you think would be best for this borrower, and why? and 3) (Here is the bonus for 10 points - you can skip this part if you wish) where is there wiggle room in your calculations and what could you consider doing to help the borrower qualify for a larger loan?
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