You are applying for a conventional mortgage from the Americana Bank. Your monthly gross income is $3,500,
and the bank uses the 28% housing expense
ratio guideline.
a. What is the highest PITI for which you can qualify? Hint: Solve the housing expense ratio formula for
PITI. Remember, this is an
application of the percentage formula, Portion = Rate x Base, where PITI
is the portion, the expense ratio is
the rate, and your monthly gross income is the base.
b. Based on your answer from part a, if you are applying for a 30-year, 9% mortgage and the taxes and
insurance portion of PITTIS
$175 per month, use Table 14-1 to calculate the size of the mortgage for
which you qualify. Hint:
Subtract TI from PITI. Divide the PI by the appropriate table factor to
determine the number of $
1,000s for which you qualify.
c. Based on your answer from part b, if you are planning on a 20% down payment, what is the most
expensive house
you can afford? Hint: Use the percentage formula again. The purchase price of the
house is the base,
the amount financed is the portion, and the percent financed is the rate.