Question

You work for a lending institution and are tasked with whether or not to approve a home loan. all applicants are required to have a 20% down payment, and the standard 28/36 ratio is used the loan application is for $230,000. you see that the applicant has an annual salary of $83,000 and a savings account balance of $50,000. the applicant also has a car payment of $315, a student loan of $140 and a boat loan of $96. how likely are you to approve the loan?

Answer 1

28% is the front end ratio meaning the mortgage cant exceed 28% of her gross monthly income. With a mortgage of 184k plus taxes and insurance the applicant will likely be under 1500 mo for housing related expenses.  The applicant makes 83k/12mo = $6900mo times by .28 equales $1932mo to keep it under 28 %.  So the applicant is within the front end 28% ratio.  The applicant also has 50k cash to cover the 46k down payment.  Lastly, is the applicant under the back end ration of 36%( which includes all monthly debt.  So 1500 housing plus 315 car plus 140 student loans plus 96 for the boat equals $2051 in total monthly debt obligations.  Once again the applicants gross monthly income is 6900 times by .36 = $2484 a mo.  The applicants total monthly debt is less than 2484.  I would approve this loan.