Question

6. Debt payments-to-income ratios will likely be considered as you apply for a mortgage. The Focus on Personal Finance text suggests keeping this ratio below 20%. A mortgage lender will have their own ratio for all debt payments, including mortgage-to-income ratio, before they will consider approval. Using this information, answer the questions and show your calculations in the table below: • Net monthly income: $4,000 • Expected full mortgage payment (PITI): $1,000 • Student loan payment: $250 • Car payment: $300 Enter your calculation and response in this column. What is this person’s debt payments-to-income ratio? What is this person’s debt payments-to-income ratio when the full mortgage payment is included? If the mortgage lender required total payment to income ratio below 40%, would this person meet that standard? If the mortgage lender required total payment to income ratio below 45%, what is the maximum monthly payments this person could have to meet the standard?

Answer 1

Since the income is 4000.

The Student loan payment is 250.

And the car payment is 300.

So total effective Payment= 4000 - 250 - 300= 3450.

The Mortgage payment is = 1000.

So, the total debt payment to income ratio is = Mortgage payment/ effective income = 1000/3450 = 28.98 %.

As the ratio required is less than 40%, hence he will get the mortgage loan.

If required payment to income ratio is 45% then the maximum payment he can afford is = 3450* 45% = 1552.5.