Question

Activity

The Garcias have an annual gross income of $151, 612 per year. They want to buy a new home that would have an estimated
monthly mortgage payment of $1,965. Their annual property taxes would be $6,140, and their semiannual homeowners
insurance premium would be $795.
Part A
? Question
What is the Garcias' front-end ratio?
Hint: Divide any annual amounts by 12 and semiannual amounts by 6 to obtain the monthly equivalent.
O 21%
O 23%
evaluation of your work.
O 24%
O 26%

Answer 1

The Gracias' front -end ratio is 21% or 20.7% .

Explanation:

To calculate the Garcias' front-end ratio, we need to divide the estimated monthly mortgage payment by their gross monthly income.

First, we need to calculate their gross monthly income by dividing their annual gross income by 12:

$151,612 / 12 months = $12,634

Next, we need to calculate their monthly property taxes by dividing their annual property taxes by 12:

$6,140 / 12 months = $512

Then, we need to calculate their monthly homeowners insurance premium by dividing their semiannual premium by 6:

$795 / 6 months = $133

Finally, we can calculate their total monthly housing expenses by adding up the monthly mortgage payment, property taxes, and homeowners insurance premium:

$1,965 + $512 + $133 = $2,610

To find the front-end ratio, we divide their monthly mortgage payment by their gross monthly income and multiply by 100 to get a percentage:

($1,965 / $12,634) x 100 = 15.6%

However, to get the total front-end ratio, we need to include the property taxes and homeowners insurance premium as well, so we divide their total monthly housing expenses by their gross monthly income and multiply by 100:

($2,610 / $12,634) x 100 = 20.7%

Therefore, the Garcias' front-end ratio is 20.7%, or 18.4% if we only include the mortgage payment and not the property taxes and insurance premium.