Question

You work for a lender that requires a 20% down payment and uses the standard debt-to-income ratio to determine a person’s eligibility for a home loan. Of the following, choose the person that you would rate the highest on their eligibility for a home loan.

Person A
Person B
Person C
Person D
home value
$175,000
$200,000
$220,000
$250,000
income
$51,000
$58,000
$63,000
$67,000
savings
$35,000
$40,000
$42,000
$50,000
recurring debt
$350
$250
$200
$450

a.
Person A
b.
Person B
c.
Person C
d.
Person D

Answer 1

b. Person B

Reason: Persons A, B, and D can make the 20% down payment (A $35,000, B $40,000, D $50,000); C cannot (needs $44,000 but has $42,000). Using recurring debt ÷ monthly gross income as the DTI measure:

- A: 350 / (51,000/12) = 350 / 4,250 = 8.24%
- B: 250 / (58,000/12) = 250 / 4,833.33 = 5.17%
- D: 450 / (67,000/12) = 450 / 5,583.33 = 8.06%

Person B has the lowest DTI and meets the down payment, so B is the most eligible.