Question

Luis wants to buy a home priced at $315,000. He plans to finance this amount less the down payment required. His mortgage payment would then be $2100. Luis has an annual income of $91,500 and $65,000 in savings. Luis has a car payment of $370, a student loan payment of $165 and a credit card payment of $45. Use a 20% down payment and the 28/36 ratio to determine if Luis is eligible for a loan. What would you advise him to do if he is not eligible?

Answer 1

Thank you for posting your question here.  which is "Luis is eligible for a home loan; he meets all of the requirements." He can use his saving for the down payment and his income is sufficient for the monthly amortization. I hope it helps. 

Answer 2

Solution:

Annual income of Luis= $ 91,500

$\frac{28}{36}$ ratio states that maximum of 28 % of your gross monthly income should be spent on housing finances and not more than 36% of your total monthly income should be spent on loans.

36% of $ 91,500= 0.36 × 91,500=$ 32,940(Annualy)

Total money that luis can use for loan as a monthly payment =$ $\frac{32940}{12}=2745$ $

Amount that Luis spent on loan Monthly  =car payment of $370, a st udent loan payment of $165 and a credit card payment of $45= $ 370 + $ 165 + $ 45=$ 580

Amount that can be used for housing debt = $ 2745 - $ 580= $2165

Down Payment =

20 % of $315,000=0.20 × 315,000 =$ 63,000

Remaining amount for home that Luis has to pay = $ 315,000 - $ 63,000=  $252,000 (not given in how many months or years Luis has to pay this amount )

Mortgage payment = $ 2100

Calculated Mortgage payment on $ 91,500 using 28% rule = 0.28 × 91,500=$25620 (Yearly)

Amount that Luis can use for Mortgage payment monthly=$ $\frac{25620}{12}=2135$ $(Calculated) Monthly

So, Money saved = 2135-2100=$ 35

If Monthly income allowable for Debt(i.e if $ 252,000 is divided into months) > or exceeds $ 2165, then Luis is not eligible for Loan.

If Monthly income allowable for Debt (i.e if $ 252,000 is divided into months )< or Less than $ 2165, then Luis is eligible for Loan.

The advise that i will give to Luis is that he should make full payment of his  car debt, and stop being Extravagant i.e start saving more money if he wants to Possess a home.