Question

A lender uses a 39% debt ratio. A borrower earns $40,000 / year and has monthly non-housing debt payments of $700. What housing payment can she afford?

Answer 1

Answer: The borrower could afford a $600 house payment.

To find the house payment, we first need to find the monthly income of the borrower.

40000 / 12 = 3333.33

Now, we take the $3,333.33 monthly amount and multiply it by the 39% debt ratio.

3333.33 x 0.39 = 1300

So, the lender has $1,300 to spend. If we minus the $700 non-housing debt payments, he/she is left with $600 for his house payment.