A Florida borrower has a monthly gross income of $7,200. The lender uses a 28% front-end ratio for housing expenses and a 36% back-end ratio for total debt. If the borrower has $450 in monthly debt payments, what is the maximum monthly housing payment they can qualify for?
Correct Answer
C) $2,016
The front-end limit is $7,200 times 28%, or $2,016. The back-end limit is $7,200 times 36%, or $2,592, less $450 in existing monthly debt, or $2,142 available for housing. The borrower must meet both limits, so the lower amount, $2,016, is the maximum housing payment. Option C is correct.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Discount points are upfront fees paid to a lender at closing to reduce (buy down) the interest rate on a mortgage loan. One point equals 1% of the loan amount and typically reduces the rate by approximately 0.25%.
An FHA loan is a mortgage insured by the Federal Housing Administration that allows lower down payments and credit scores than conventional loans. It is designed to help first-time homebuyers and borrowers with limited resources.
A fixed-rate mortgage has an interest rate that remains constant for the entire term of the loan, resulting in equal monthly principal and interest payments throughout the life of the mortgage.
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