JENNIFER'S HOUSE
Jennifer wants to buy a house for $300 000. Her house is worth $200 000 with a mortage of $80 000. She owns a car worth 1 300, but still owes $600. She also has stocks worth $40 000, $10 000 in the bank, and $30 000 in a savings account. She still also has to pay $5 000 for a trip she went on to California.
a) Would she be able to get a loan to buy the house?
Liability - 200 000 + 1 300 + 40 000 + 10 000 + 30 000 = 301 300
Debt - 80 000 + 600 + 5 000 = 85 600
301 300 - 85 600 = 215700
(215700-80000)/215700 = .6291145109
No she would not be able to get the loan.
WHY? First you find all the liability (anything of worth she has) and get the total. You then find all her debt and add it all up together, then subtract the debt from the liability. That is her total liability or net worth. You then subtract the mortage from that end after divide by her net worth. Why do we do this? It's called the Debt/Equity Ratio, which state you do the following equation... (total liability-mortage)/ net worth. If the answer is over .5 even by half a percent you will have a hard time getting a loan anywhere.
a) Would she be able to get a loan to buy the house?
Liability - 200 000 + 1 300 + 40 000 + 10 000 + 30 000 = 301 300
Debt - 80 000 + 600 + 5 000 = 85 600
301 300 - 85 600 = 215700
(215700-80000)/215700 = .6291145109
No she would not be able to get the loan.
WHY? First you find all the liability (anything of worth she has) and get the total. You then find all her debt and add it all up together, then subtract the debt from the liability. That is her total liability or net worth. You then subtract the mortage from that end after divide by her net worth. Why do we do this? It's called the Debt/Equity Ratio, which state you do the following equation... (total liability-mortage)/ net worth. If the answer is over .5 even by half a percent you will have a hard time getting a loan anywhere.
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