Real Estate 101 – Real Estate Fundamentals
Principles of Real Estate Financing – Chapter #12
Mr. Mahoney
Borrowing Power Case Studies:
Using the Interest Rate Factor Chart and the Qualifying Worksheet, determine the
“borrowing power” and appropriate price range for the following purchasers.
1. Joe and Susan Brown are recently married, have a combined gross annual income
of $55,000, $300 per month in debts, and $5,000 in savings. The current market interest
rate is 7.5% for a 30 year loan. Using standard conventional qualifying rations of 28/36
how much will they be able to borrow? What is the affordable range for them?
If they can obtain a first time buyer’s loan with 33/38 qualifying ratios, how much can
they borrow? What is the affordable price range for them?
2. Jack Green earns $36,000 per year, has a total of $275 per month in debt, and savings
of $3,000. What is his “borrowing power” using the Fannie Mae first time buyer loan
ratios of 33/38 for a 7% 30 year loan? Freddie Mac’s program only uses one ratio of 38%.
What is his “borrowing power” for this loan? What is his affordable price range?
3. Sally and George Wilson have a combined income of $70,000, monthly debts of $500,
and will have $15,000 for a down payment after the sale of their present home. What is
their “borrowing power” and affordable price range using standard qualifying ratios of
28/36 and an 8% interest rate for a 30 year loan?
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INTEREST RATE FACTOR CHART
INTEREST RATE 30 year loan 20 year loan 15 year loan
4.00% 4.77 6.06 7.40
4.50% 5.07 6.33 7.65
5.00% 5.37 6.60 7.91
5.50% 5.68 6.88 8.17
6.00% 6.00 7.16 8.44
6.50% 6.32 7.46 8.71
7.00% 6.65 7.75 8.99
7.50% 6.99 8.06 9.27
8.00 % 7.34 8.36 9.56
8.50% 7.69 8.68 9.85
9.00% 8.05 9.00 10.14
9.50% 8.41 9.32 10.44
10.00% 8.78 9.65 10.75
10.50% 9.15 9.98 11.05
11.00% 9.52 10.32 11.37
11.50% 9.90 10.66 11.68
12.00% 10.29 11.01 12.00
12.50% 10.68 11.37 12.33
13.00% 11.07 11.72 12.66
13.50% 11.46 12.08 12.99
14.00% 11.85 12.44 13.32
Factor represents dollars paid per thousand of loan amount
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QUALIFYING WORKSHEET
Case Study Name: JOE AND SUSAN BROWN
Annual income divided by 12 (GMI) $____________________ (1)
Gross monthly income X ___________% $____________________ (2)
(housing ratio)
Gross monthly income X ___________% $____________________ (3)
(total debt ratio)
Total monthly debt payments $____________________ (4)
Subtract line (4) from line (3) $____________________ (5)
Enter the lessor of line (2) or line (5) $____________________ (6)
MAXIMUM MONTHLY PITI + PAYMENT
Escrow for taxes & insurance (TI)
Multiply line (6) by 25% (ave.) or use
Annual figures if available $____________________ (7)
Subtract line (7) from line (6) $____________________ (8)
MAXIMUM PRINCIPAL & INTEREST PAYMENT
Divide line (8)by rate factor of _______________ $____________________ (9)
Multiply line (9) by $1,000.00 $____________________ (10)
MAXIMUM MORTGAGE AMOUTN (“Borrowing Power”)
Cash available for down payment $____________________ (11)
Add line (11) to line (10) $____________________ (12)
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QUALIFYING WORKSHEET
Case Study Name: JACK GREEN
Annual income divided by 12 (GMI) $____________________ (1)
Gross monthly income X ___________% $____________________ (2)
(housing ratio)
Gross monthly income X ___________% $____________________ (3)
(total debt ratio)
Total monthly debt payments $____________________ (4)
Subtract line (4) from line (3) $____________________ (5)
Enter the lessor of line (2) or line (5) $____________________ (6)
MAXIMUM MONTHLY PITI + PAYMENT
Escrow for taxes & insurance (TI)
Multiply line (6) by 25% (ave.) or use
Annual figures if available $____________________ (7)
Subtract line (7) from line (6) $____________________ (8)
MAXIMUM PRINCIPAL & INTEREST PAYMENT
Divide line (8)by rate factor of _______________ $____________________ (9)
Multiply line (9) by $1,000.00 $____________________ (10)
MAXIMUM MORTGAGE AMOUTN (“Borrowing Power”)
Cash available for down payment $____________________ (11)
Add line (11) to line (10) $____________________ (12)
4
QUALIFYING WORKSHEET
Case Study Name: SALLY AND GEORGE WILSON
Annual income divided by 12 (GMI) $____________________ (1)
Gross monthly income X ___________% $____________________ (2)
(housing ratio)
Gross monthly income X ___________% $____________________ (3)
(total debt ratio)
Total monthly debt payments $____________________ (4)
Subtract line (4) from line (3) $____________________ (5)
Enter the lessor of line (2) or line (5) $____________________ (6)
MAXIMUM MONTHLY PITI + PAYMENT
Escrow for taxes & insurance (TI)
Multiply line (6) by 25% (ave.) or use
Annual figures if available $____________________ (7)
Subtract line (7) from line (6) $____________________ (8)
MAXIMUM PRINCIPAL & INTEREST PAYMENT
Divide line (8)by rate factor of _______________ $____________________ (9)
Multiply line (9) by $1,000.00 $____________________ (10)
MAXIMUM MORTGAGE AMOUTN (“Borrowing Power”)
Cash available for down payment $____________________ (11)
Add line (11) to line (10) $____________________ (12)
5
Monthly Mortgage Payment Case Studies:
Using the CALCULATING MONTHLY MORTGAGE PAYMENT CHART prepare an
estimate for the following prospective purchasers (all 30 year loan).
1. Joe and Susan Brown would like to purchase a townhouse for $142,000 with a first
mortgage of approximately $137,700, with an interest rate of 7.5%.
2. Jack Green wants to buy a condo for $93,000 with a first mortgage of approximately
$90,000 at an interest rate of 7%.
3. Sally and George Wilson have found a two-story Colonial for $180,000. With $15,000
down their mortgage would be $165,000. What will their monthly payment be with an
8% interest rate?
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CALCULATING MONTHLY MORTGAGE PAYMENT
Purchaser: JOE AND SUSUAN BROWN
Preparing an Estimate for Prospective Purchase
Principal and Interest: $_________________
(Estimated loan amount times interest rate
factor of dollars per $1,000 of loan amount)
Taxes and Insurance: $_________________
(Estimate 2% of sales price; divide by 12)
Mortgage Insurance: $_________________
(Assuming 5% or less down: use average
of .80 times loan amount; divide by 12)
Condominium or Homeowner’s Fee: $_________________
(Estimate $250 for condo, $40 for HOA;
will vary in different geographic areas)
Total Estimated Monthly Payment $_________________
Preparing Estimate Based on Actual Purchase
Principal and Interest: $_________________
(Loan amount times interest rate factor)
Property Taxes: $_________________
(Annual Tax assessment from public records or
listing sheet; divide by 12)
Hazard Insurance: $_________________
(Actual annual policy or estimate $2.50 per
thousand of sales price; divide by 12)
Mortgage Insurance: $_________________
(Actual figure from lender or estimate .80 times
loan amount; divide by 12)
Condominium or Homeowner’s Fee: $_________________
(Actual figures or call condo or HOA office)
Total Monthly Payment $_________________
7
CALCULATING MONTHLY MORTGAGE PAYMENT
Purchaser: JACK GREEN
Preparing an Estimate for Prospective Purchase
Principal and Interest: $_________________
(Estimated loan amount times interest rate
factor of dollars per $1,000 of loan amount)
Taxes and Insurance: $_________________
(Estimate 2% of sales price; divide by 12)
Mortgage Insurance: $_________________
(Assuming 5% or less down: use average
of .80 times loan amount; divide by 12)
Condominium or Homeowner’s Fee: $_________________
(Estimate $250 for condo, $40 for HOA;
will vary in different geographic areas)
Total Estimated Monthly Payment $_________________
Preparing Estimate Based on Actual Purchase
Principal and Interest: $_________________
(Loan amount times interest rate factor)
Property Taxes: $_________________
(Annual Tax assessment from public records or
listing sheet; divide by 12)
Hazard Insurance: $_________________
(Actual annual policy or estimate $2.50 per
thousand of sales price; divide by 12)
Mortgage Insurance: $_________________
(Actual figure from lender or estimate .80 times
loan amount; divide by 12)
Condominium or Homeowner’s Fee: $_________________
(Actual figures or call condo or HOA office)
Total Monthly Payment $_________________
8
CALCULATING MONTHLY MORTGAGE PAYMENT
Purchaser: SALLY AND GEORGE WILSON
Preparing an Estimate for Prospective Purchase
Principal and Interest: $_________________
(Estimated loan amount times interest rate
factor of dollars per $1,000 of loan amount)
Taxes and Insurance: $_________________
(Estimate 2% of sales price; divide by 12)
Mortgage Insurance: $_________________
(Assuming 5% or less down: use average
of .80 times loan amount; divide by 12)
Condominium or Homeowner’s Fee: $_________________
(Estimate $250 for condo, $40 for HOA;
will vary in different geographic areas)
Total Estimated Monthly Payment $_________________
Preparing Estimate Based on Actual Purchase
Principal and Interest: $_________________
(Loan amount times interest rate factor)
Property Taxes: $_________________
(Annual Tax assessment from public records or
listing sheet; divide by 12)
Hazard Insurance: $_________________
(Actual annual policy or estimate $2.50 per
thousand of sales price; divide by 12)
Mortgage Insurance: $_________________
(Actual figure from lender or estimate .80 times
loan amount; divide by 12)
Condominium or Homeowner’s Fee: $_________________
(Actual figures or call condo or HOA office)
Total Monthly Payment $_________________
RE101(11)1205-SelectedProblems
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