Question

A young graduate is attempting to buy a condominium for $50,000. If his total housing expense will be $575 and he has long-term debts of $395 per month, will he qualify for an FHA loan based on his $24,000 annual salary?

Answer 1

Based on the young graduate's salary and expenses, it is unlikely that he will qualify for an FHA loan.

Step-by-step explanation:

To determine if the young graduate qualifies for an FHA loan, we need to consider his total housing expense, long-term debts, and annual salary. The total housing expense includes the mortgage payment, property taxes, insurance, and any homeowner association fees. Since only the mortgage payment is provided in the question, we need to make some assumptions. Assuming that the annual property taxes, insurance, and homeowner association fees amount to $1000, the total housing expense would be $575 + $1000 = $1575 per month.

Next, let's calculate the debt-to-income (DTI) ratio, which is a key factor in FHA loan eligibility. The DTI ratio is calculated by dividing the total monthly debts by the gross monthly income. The total monthly debts in this case is $395 (long-term debts) + $1575 (housing expense) = $1970. The gross monthly income is $24,000 / 12 = $2000. Therefore, the DTI ratio is $1970 / $2000 = 0.985, or 98.5%.

According to FHA guidelines, the maximum DTI ratio allowed is generally 43%. Since the young graduate's DTI ratio of 98.5% exceeds this limit, it is unlikely that he will qualify for an FHA loan based on his salary and expenses.