Question

To determine what a borrower can afford, one common calculation is to multiply the stable monthly income by 0.31. What does this calculation represent in terms of the borrower's affordability?

Answer 1

The calculation of multiplying the stable monthly income by 0.31 represents the maximum amount of monthly income that a borrower can allocate towards their mortgage payment.

Step-by-step explanation:

The calculation of multiplying the stable monthly income by 0.31 represents the maximum amount of monthly income that a borrower can allocate towards their mortgage payment.

For example, if a borrower has a stable monthly income of $5000, they can afford to spend a maximum of $1550 ($5000 * 0.31) per month on their mortgage payment.

This calculation helps lenders determine the borrower's affordability by ensuring that the mortgage payment is within a reasonable percentage of their monthly income.