Question

The bank that the Payans would like to borrow from uses the back-end ratio to determine loan qualification, approving applications if the back-end ratio is less than 36%. So, the Payans have collected some information on what the bank will consider to calculate the ratio, including what they estimate their monthly mortgage payment will be.According to the Payans' back-end ratio calculation, the bank will ______(most likely, not) lend the Payans $250,000 to purchase the home because their back-end ratio is_____(equal to, higher than, lower than) 36%

Answer 1

Approved if back-end ratio is less than 36%

Total income: $10,000

Total expenses:

$1,100 + $150 + $500 + $1,000 + $400 = $3,150

Back-end ratio: (Total expenses) / (Total Income) x 100

= (3150/10000)x100 = 31.5%

According to the Payans' back-end ratio calculation, the bank will most likely lend the Payans $250,000 to purchase the home because their back-end ratio is lower than 36%