# Real Estate Finance

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```							                    RE 611 / Fin 611 – Real Estate Finance
Homework 8  Residential Underwriting

Dr. Stanley D. Longhofer

1) Mark wants to buy a house. To do so, he must incur a mortgage. A local lender has
determined that Mark can afford a monthly principal and interest payment of \$725. If
the current rate on 30-year, fixed-rate mortgages is 5.50 percent, what is the
maximum loan amount for which Luke can qualify? Assuming Mark will make a 5
percent down payment, what is the most he can pay for a house?
2) John would like to purchase a \$180,000 home and is planning on making an \$18,000
down payment for a 6.50 percent, 30-year, fixed-rate mortgage.
a) What is the required monthly principal and interest payment on this mortgage?
b) An appraisal has estimated the market value of this property to be \$190,000.
What is John’s loan-to-value ratio? Will a lender likely require him to obtain
PMI? Explain.
c) John’s income is \$65,000 per year. He also has the following monthly expenses:
Hazard insurance          \$80
Property taxes            \$170
PMI (if needed)           \$105
Auto payment              \$350
Credit cards              \$250
Monthly utilities         \$375
Student loan              \$400
Calculate John’s front-end and back-end ratios. Given these figures, will John
meet the income guidelines for a conventional mortgage? Explain.

```
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