Question

If the total debt ratio is 36%, and the allowable mortgage debt ratio is 28%, which of the following debt ratios would a loan applicant qualify for if:

a. The loan applicant's gross monthly income is $2,500, with a mortgage payment of $600
b. A car payment of $250, and minimum monthly credit card payment of $75

Answer 1

The loan applicant would qualify for the mortgage debt ratio in option a because his mortgage debt ratio is 24% and the allowable mortgage debt ratio is 28%.

Step-by-step explanation:

First, you have to calculate the debt ratio in each case. It is calculated by dividing the total debt by the income.

a. Debt= $600

Income= $2,500

Mortgage debt ratio=600/2,500= 0.24→24%

b. Debt=$600+$250+$75=$925

Income=$2,500

Total Debt ratio=925/2,500= 0.37→37%

The loan applicant would qualify for the mortgage debt ratio because his mortgage debt ratio is 24% and the allowable mortgage debt ratio is 28%. The loan applicant would not qualify for the total debt ratio because his ratio is 37% and the allowable total debt ratio is 36%.