Rollin and Sandra want to buy a home priced at $265,000. They plan to finance this amount less the down payment required. Rollin and Sandra have a combined annual income of $83,600 and have saved $53,000. They have a recurring debt of $582. Use a 20% down payment and the 28/36 ratio to determine if Rollin and Sandra are eligible for a loan. What would you advise them to do if they are not eligible?

Answer:

They have the required $53,000 down payment and can meet the 28/36 guidelines if their total monthly mortgage and housing costs are no more than $1,926 ($2,508 total-debt limit minus $582 recurring debt). Since the loan terms and other housing costs are not given, approval cannot be determined conclusively. If the estimated monthly costs exceed $1,926, they should consider a less expensive home, pay down recurring debt, or increase their down payment or income.