You will be spending the next 5 years of your life in one place, then moving to wherever will take you. You find a $150,000 house that you want to buy and get preapproved for an 8% APR, fully amortizing 30-year mortgage. In addition to your $35,000 down payment, the bank requires you to pay 2 points up front.
• What will be loan’s loan-to-value ratio (do not deduct points from the loan amount)?
• If you make $25,000 per year, what will be your debt to income ratio?
• Based on these two conditions (assuming all others are met), will your bank be able to sell this loan on the secondary market?
• Assuming you will sell the house when you finish the program, what will your effective annual rate, i.e. the actual APY, be?