Real Estate Finance

							                    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.