Question

Eric Jones develops computer software for a major company. Eric's salary and bonuses total $82,000, but he pays $29,233 in income and Social Security taxes. If Eric's annual debt repayments are $33,620, what is his debt -to-income ratio?

Answer 1

0.41

Step-by-step explanation:

To calculate Eric's debt to income ratio we must divide his total debt payments by his gross income = total annual repayments / (Eric's salary + bonuses) = $33,620 / $82,000 = 0.41

The new qualified mortgage rule establishes that a good debt to income ratio must be 0.43 or less. For other types of credits, banks usually consider a 0.4-0.5 ratio as good or acceptable.