A self-employed borrower's eligible business income, after all required underwriting adjustments, is $72,000 for the first year and $84,000 for the second year. Using a simple 24-month average, what monthly income is used?
Correct Answer
C) $6,500
Why this is correct: For a self-employed borrower using a 24-month average, the monthly income is calculated by summing the eligible income for both years and dividing by 24 months. Year 1: $72,000; Year 2: $84,000. Total = $156,000. $156,000 divided by 24 = $6,500 per month. Why the other choices are wrong: "$3,250" is wrong because it might result from dividing only one year's income by 12 ($72,000/12). "$6,000" is wrong as it could be a simple average of the two annual figures ($72,000 + $84,000 = $156,000 / 2 = $78,000 annual average) but then incorrectly divided by 12.5 or another number, not the required 24. "$7,000" is wrong because it might result from using only the second year's income divided by 12 ($84,000/12). Exam tip: For 24-month average income questions, always sum the two years' figures first, then divide by 24, not by 12 or 2.
Why This Is the Correct Answer
Why this is correct: For a self-employed borrower using a 24-month average, the monthly income is calculated by summing the eligible income for both years and dividing by 24 months. Year 1: $72,000; Year 2: $84,000. Total = $156,000. $156,000 divided by 24 = $6,500 per month. Why the other choices are wrong: "$3,250" is wrong because it might result from dividing only one year's income by 12 ($72,000/12). "$6,000" is wrong as it could be a simple average of the two annual figures ($72,000 + $84,000 = $156,000 / 2 = $78,000 annual average) but then incorrectly divided by 12.5 or another number, not the required 24. "$7,000" is wrong because it might result from using only the second year's income divided by 12 ($84,000/12). Exam tip: For 24-month average income questions, always sum the two years' figures first, then divide by 24, not by 12 or 2.
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