Sharp EL-733 EL-733A Operation Manual - Page 46

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Qualifying A Home Buyer If you are in real estate sales, you know that banks use certain formulas to qualify a home buyer. These formulas vary slightly from state to state and from bank to bank, but the goal behind qualifying a buyer is to make sure that the buyer's income can support the burden of owning a home. One rule of thumb is for qualifying a buyer is this: If the buyer has current debt liability that is Zess than 35% of their gross income (income before taxes), then they can afford a payment (including taxes and insurance) of about 28% of their gross income. Now, the taxes and insurance part of a mortgage payment varies considerably from state to state. In your state, a rule of thumb probably exists that says "taxes and insurance make up x-percent of a mortgage payment." In the state where this manual is being written, taxes and insurance consume about 25% (gulp!) of a mortgage payment. In your state it may be considerably different. Example: A newlywed couple have an appointment with you in your real estate sales office. As you introduce yourself, you question the seriousness of these two bubbly characters, but your eyes light up when they ask you what price range of houses they can be looking at with a combined gross income of $41200.00 a month. In your state, the numbers to the rule of thumb for buyer qualification are as stated in the description that precedes this example. Interest rates are right at 10%. What is the price range of the houses that you can show this couple? Solution: The first calculation is a percentage calculation. What mortgage payment can this couple qualify to make? 4'200 0 28 la Result: 1'176 The highest payment they can qualify for is $1'176.00. This assumes that they don't have more than 35% (or $1470 per month) tied up in other liablilities. But also, that $11176 mortgage payment will include taxes and insurance, so you need to subtract those out before you do a PV calculation. Press: H 25 la Result: 882.00 Remember, this 25% number for taxes and insurance varies from state to state. Once you have subtracted the taxes and insurance from their mortgage payment store this ($882.00) as payment. Press: (Mode: FIN) l+/-) PITA1 Then sketch out a cash-flow schedule (or visualize one in your mind) that represents a 30 year mortgage at 10% APR with a known payment and an unknown PV:

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Qualifying
A
Home
Buyer
If
you
are
in
real
estate
sales,
you
know
that
banks
use
certain
formulas
to
qualify
a
home
buyer.
These
formulas
vary
slightly
from
state
to
state
and
from
bank
to
bank,
but
the
goal
behind
qualifying
a
buyer
is
to
make
sure
that
the
buyer's
income
can
support
the
burden
of
owning
a
home.
One
rule
of
thumb
is
for
qualifying
a
buyer
is
this:
If
the
buyer
has
current
debt
liability
that
is
Zess
than
35%
of
their
gross
income
(income
before
taxes),
then
they
can
afford
a
payment
(including
taxes
and
insurance)
of
about
28%
of
their
gross
income.
Now,
the
taxes
and
insurance
part
of
a
mortgage
payment
varies
considerably
from
state
to
state.
In
your
state,
a
rule
of
thumb
probably
exists
that
says
"taxes
and
insurance
make
up
x
-percent
of
a
mortgage
payment."
In
the
state
where
this
manual
is
being
written,
taxes
and
insurance
consume
about
25%
(gulp!)
of
a
mortgage
payment.
In
your
state
it
may
be
considerably
different.
Example:
A
newlywed
couple
have
an
appointment
with
you
in
your
real
estate
sales
office.
As
you
introduce
yourself,
you
question
the
seriousness
of
these
two
bubbly
characters,
but
your
eyes
li
ght
up
when
they
ask
you
what
price
range
of
houses
they
can
be
looking
at
with
a
combined
gross
income
of
$4
1
200.00
a
month.
In
your
state,
the
numbers
to
the
rule
of
thumb
for
buyer
qualification
are
as
stated
in
the
description
that
precedes
this
example.
Interest
rates
are
right
at
10%.
What
is
the
price
range
of
the
houses
that
you
can
show
this
couple?
Solution:
The
fi
rst
calculation
is
a
percentage
calculation.
What
mortgage
payment
can
this
couple
qualify
to
make?
4'200
0
28
la
Result:
1'176
The
highest
payment
they
can
qualify
for
is
$1'176.00.
This
assumes
that
they
don't
have
more
than
35%
(or
$1470
per
month)
tied
up
in
other
liablilities.
But
also,
that
$1
1
176
mortgage
payment
will
include
taxes
and
insurance,
so
you
need
to
subtract
those
out
before
you
do
a
PV
calculation.
Press:
H
25
la
Result:
882.00
Remember,
this
25%
number
for
taxes
and
insurance
varies
from
state
to
state.
Once
you
have
subtracted
the
taxes
and
insurance
from
their
mortgage
payment
store
this
($882.00)
as
payment.
Press:
(Mode:
FIN)
l+/-)
PIT
A1
Then
sketch
out
a
cash
-flow
schedule
(or
visualize
one
in
your
mind)
that
represents
a
30
year
mortgage
at
10%
APR
with
a
known
payment
and
an
unknown
PV: