Question

Alisha has a monthly income of $4,500. She wants to purchase a house that will have an estimated monthly mortgage payment of $750, annual property tax of $1,500, and an annual insurance premium of $600. Use the front-end ratio to determine whether Alisha will be approved for the loan. Alisha be approved for the loan because her front-end ratio is 28%.

Answer 1

Answer:

Loan will be approved

Explanation:

To calculate front end ratio, we use following formula

Front-end DTI = (house expenses/monthly grass income) x 100

House expenses = monthly mortgage payment + monthly property tax + monthly insurance premium

Monthly house expenses = 750 + (1500/12) + (600/12)

Monthly house expenses = 750 + 125 + 50

Monthly house expenses = $925

Putting all values in above formula

Front-end DTI = (monthly house expenses/monthly gross income) x 100

Front-end DTI = (925/4500) x 100

Front-end DTI = 20.6%

Alisha's loan will be approved because her front-end DTI is less than the required for loan