Answer:
The maximum house payment than can be afforded = $970
Explanation:
The front-end ratio = 28%
The front end ratio limits housing-related expenses to 28% × $62,000
= 0.28 × $62,000
= $17,360 per year
Annual property tax = $3600
Annual homeowner's premium = $360
So the amount that can be spent on mortgage debt = expense limit - annual premium of homeowner - annual property tax
⇒ Amount that can be spent on mortgage = 17360 - 3600 - 360
= $13400 per year
The back-end ratio limits the total of all debt to 36% × $62,000
= 0.36 × 62,000
= $22,320 per year
To find allowable additional debt : Subtract the payments which are already made
⇒ Allowable payment amount = 22320 - 12 × (335 +225) - 3600 - 360
= $11,640
The back end ratio limit is lower than the front end ratio limit, So the monthly house payment will be limited by the back end ratio.
