Question

A buyer's gross income is $90,000 per year. She pays $300 for a car loan and $200 for her student loan. When she applies for a mortgage the bank requires a maximum debt-to-income ratio of 36% on all debt, and a maximum 28% debt-to-income ratio for housing debt. What is the maximum monthly house payment the bank will approve

Answer 1

Based on the buyer's gross income, her car and student loan payments, and the maximum debt-to-income ratio, the maximum monthly house payment that the bank will approve is $2,100.

What amount will the bank approve?

The maximum debt-to-income ratio for housing the bank will approve is 28% which is:

= (90,000 / 12 months) x 28%

=$2,100

The maximum debt-to-income ratio is 36%:

= (90,000 / 12 months) x 36%

= $2,700

Allowance for debt:

= 2,700 - 300 - 200

= $2,200

There is therefore enough space to take on the maximum debt-to-income ratio for housing so the amount of $2,100 will be approved.

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