Question

If your annual gross income is $62,000 and you have one monthly car payment of $335 and a monthly student loan payment of $225, what is the maximum house payment you can afford. Consider a standard 28% front-end ratio and a 36% back-end ratio. Also, to complete your calculation, the annual property tax will be $3,600 and the annual homeowner's premium will be $360.

Answer 1

Answer:

  $970 (limited by the back-end ratio)

Step-by-step explanation:

The front-end ratio limits housing-related expenses to ...

  28% × $62,000 = $17,360

per year. So the amount that can be spent on mortgage debt is ...

  $17,360 -3600 -360 = $13,400 . . . per year

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The back-end ratio limits the total of all debt to ...

  36% × $62,000 = $22,320

Subtracting payments already being made, we find the allowable additional annual debt to be ...

  $22,320 -12·(335 +225) -3600 -360 = $11,640

This is a lower limit than that required by the front-end ratio. It limits the monthly house payment to ...

  $11,640/12 = $970