The Rhodes family is applying for a 30-year FHA mortgage loan at 4.00% interest per year....

The Rhodes family is applying for a 30-year FHA mortgage loan at 4.00% interest per year. Based upon the front-end ratio, what is the maximum loan the family can afford? Use the most conservative FHA ratio. Their financial situation is as follows:

Item	Amount	Frequency	Time Remaining
Familly Income	50000	annual
Car loan	350	monthly	36 months
Student loans	180	monthly	110 months
Boat loan	400	monthly	7 months

Expert Solution

Gross monthly Income = $50000 / 12 = $4167

31% of the monthly income = $1292

Monthly payment of each cases is lower than 31%

Total Debt burden = Debt burden of Car, student and boat

= $350 + $180 +$400

= $930

Total Debt burden is 22.31% i.e. (930/4167 ˣ 100) it is also satisfied

DTI Ratio = Housing expenses / Gross monthly income = 22.31%

It means Rhodes family is committed 22.31% income to pay debts

22.31% of income = ($50000 ˣ 22.31%)/12

= $930

The maximum loan amount the family can afford is $16081.59

jeff jeffy answered 1 year ago

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