Two years ago, you purchased a car from your uncle and have been paying $250.00 a month. You have another year to go. You are now ready to participate in the American Dream, and contemplate buying a house. Current 30 year mortgage rates are at a low annual rate of 4.00%. Furthermore, you must put 15% as a down payment on any house that you buy. You want to buy the house on Main Street that costs $380,000. The mortgage company has approved your loan. When you tell the mortgage officer about your $250 car payment, he says “If it doesn't show up on your credit report, we don't have to consider it. And it will be gone in a year anyway". You know that the required mortgage payment will be almost impossible to pay until you finish paying car payments, but you don't want to wait another year because you fear that interest rates and house prices might go up.
Answer the following questions:
a) How much do you need for the down payment?
b) What is the amount of the monthly mortgage payment?
c) Do you agree with the officer's comment? Why or why not?
d) If the loan goes bad, who is at fault? Why?
e) What should you do, and why?