Fannie Mae Foundation: How to Buy a Home

Qualifying example 1

1. Go through the qualifying example step by step, performing the mathematical computations on the board. Note that you must use the chart on page 30 to calculate the monthly payment on a 30-year loan.

2. Ask students to compare the shaded items.

a. Are the Millers’ monthly housing costs at or below their allowable amount? (Compare the first shaded line with the second. If the second is smaller, they are within the allowable amount.)

b. Are their total monthly costs within the allowable limit? (Compare the third shaded line with the fifth shaded line at the bottom of the page. If the bottom line is smaller than the third line, they are within the allowable limit.)

3. Ask students to give an opinion about whether the Millers should qualify for the loan they want. (The Millers are within the allowable limits. Since they have saved for a down payment, they may well qualify for a house in the price range they would like.)

4. For more practice, ask students to see if they can determine the highest loan amount the Millers could
qualify for.

Comprehension check

1. After you have carefully reviewed the sample qualifying worksheet, divide students into small groups to complete the comprehension questions. Make sure they thoroughly understand how to read the forms before you expect them to fill in
their own.

2. If students need more practice, invent some additional qualifying
examples using the worksheet on page 29. Or have students invent
their own examples and exchange worksheets to practice.

Unit 1 : Lesson 4: How much can you afford to borrow?

Qualifying

Example 1

Tom and Mary Miller Home Mortgage Qualifying Worksheet
Tom Miller’s gross annual salary	$15,500
Mary Miller’s gross annual salary	17,500
Total gross annual salary	33,000

Total monthly income ( $33,000 divided by 12)	2,750

Monthly gross income	2,750
Multiply by 28%	x .28
Allowable monthly housing costs	770
Home purchase price	63,000
Down payment	8,000
Mortgage loan amount	55,000

30-year, $55,000 loan at 8% interest—monthly payment (See this page for more information)	404
Monthly taxes and insurance	+ 150
Total monthly housing costs	554
Monthly gross income	2,750
Multiply by 36%	x .36
Allowable total monthly debt	990
Other monthly debts
Car payment	258
Total other monthly debts	258
Total monthly housing costs	554
Total other monthly debts	+ 258
Total monthly costs	$812

This is the home mortgage qualifying worksheet for Tom and Mary Miller. With two teenagers in the house, they would like a home with three bedrooms and at least two bathrooms. Houses that size cost at least $60,000 in their neighborhood. They saw one in the paper that looked just right. It was $63,000. It hasn’t been easy, but Tom and Mary have managed to save $8,000 for a down payment. They have also set aside $3,000 for closing costs on the sale of the house. They would need to borrow up to $55,000 to buy the kind of house they have in mind. They don’t want to get their hopes up by looking at houses that are not within their budget. Look at the chart above. Do you think they will be able to afford to look at houses in the price range they’d like? (You can use the chart on this page to figure out the monthly payment on a 30-year loan.)

Comprehension check

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