Marge and Homer Sampson have saved $90,000 toward the purchase of their first home. Allowing $7000 for legal costs and moving expenses, they have $83,000 available for a down payment.
a) Based only on a loan-to-value ratio of 80%, what is the maximum purchase price they can consider?
b) After thorough investigation, the Sampsons made a $270,000 offer on a townhouse subject to arranging financing. Next they met with their banker. With an $83,000 down payment, the Sampsons will need a mortgage loan of $187,000. The current interest rate on a five-year term fixed-rate mortgage with a 25-year amortization is 6.9% compounded semiannually. The banker gathered data for calculating the Sampsons' GDS and TDS ratios. Annual property taxes will be $2400. Annual heating costs will be about $1800. The Sampsons make monthly payments of $700 on a car loan ($12,000 balance). Their gross monthly income is $5500. Calculate the GDS and TDS ratios for the Sampsons.
c) Note that the Sampsons meet the GDS criterion (_32%) but exceed the TDS limit (40%). The item causing the problem is the $700 per month car payment. Suppose the Sampsons use $12,000 of their down-payment savings to pay off the car loan. They will still have enough to make the minimum down payment (0.25 _ $270,000 = $67,500) but will have to increase the mortgage loan by $12,000 to $199,000. Recalculate the GDS and TDS ratios. Do the Sampsons satisfy all three ratios by taking this approach?

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The Answer of Marge and Homer Sampson have saved $90,000 toward the purchase of their first home. Allowing $7000 for legal costs and moving expenses, they have $83,000 available for a down payment.
a) Based only on a loan-to-value ratio of 80%, what is the maximum purchase price they can consider?
b) After thorough investigation, the Sampsons made a $270,000 offer on a townhouse subject to arranging financing. Next they met with their banker. With an $83,000 down payment, the Sampsons will need a mortgage loan of $187,000. The current interest rate on a five-year term fixed-rate mortgage with a 25-year amortization is 6.9% compounded semiannually. The banker gathered data for calculating the Sampsons' GDS and TDS ratios. Annual property taxes will be $2400. Annual heating costs will be about $1800. The Sampsons make monthly payments of $700 on a car loan ($12,000 balance). Their gross monthly income is $5500. Calculate the GDS and TDS ratios for the Sampsons.
c) Note that the Sampsons meet the GDS criterion (_32%) but exceed the TDS limit (40%). The item causing the problem is the $700 per month car payment. Suppose the Sampsons use $12,000 of their down-payment savings to pay off the car loan. They will still have enough to make the minimum down payment (0.25 _ $270,000 = $67,500) but will have to increase the mortgage loan by $12,000 to $199,000. Recalculate the GDS and TDS ratios. Do the Sampsons satisfy all three ratios by taking this approach?

Marge and Homer Sampson Have Saved $90,000 Toward the Purchase