Final answer:
In order to determine whether or not to approve a home loan, the lending institution will assess the applicant's financial situation. The applicant is required to have a 20% down payment and the standard 28/36 ratio is used to assess the applicant's debt-to-income ratio.
Step-by-step explanation:
In order to determine whether or not to approve a home loan, the lending institution will assess the applicant's financial situation. The applicant is required to have a 20% down payment, which in this case would be $230,000 x 20% = $46,000. The standard 28/36 ratio is used to assess the applicant's debt-to-income ratio. The first number, 28, represents the maximum percentage of the applicant's gross monthly income that can be used for housing expenses, and the second number, 36, represents the maximum percentage that can be used for total debt, including housing expenses.
To calculate the applicant's housing expenses, we can use the formula: (Gross Monthly Income x 28%) / 12 months = Maximum Monthly Housing Expense. In this case, the applicant's gross annual income is $83,000, so the monthly income is $83,000 / 12 = $6,916.67. Therefore, the maximum monthly housing expense would be ($6,916.67 x 0.28) / 12 = $1623.61.
To calculate the applicant's total debt, we need to consider their existing debts. In this case, they have a car payment of $315, a student loan of $140, and a boat loan of $96. Therefore, the total debt would be $315 + $140 + $96 = $551.
Based on the calculations, the applicant's maximum monthly housing expense is $1623.61 and their total debt is $551. To qualify for the loan, their monthly housing expense should not exceed $1623.61 and their total debt should not exceed (Gross Monthly Income x 36%) / 12 months = ($6,916.67 x 0.36) / 12 = $1,375. Therefore, if the applicant's monthly housing expense and total debt fall within these limits, their loan application may be approved.