Question

Luis wants to buy a home priced at $315,000. He plans to finance this amount less the down payment required. His mortgage payment would then be $2100. Luis has an annual income of $91,500 and $65,000 in savings. Luis has a car payment of $370, a student loan payment of $165 and a credit card payment of $45. Use a 20% down payment and the 28/36 ratio to determine if Luis is eligible for a loan. What would you advise him to do if he is not eligible?
a.
Luis is eligible for a home loan; he meets all of the requirements.
b.
Luis is not eligible for a home loan; he should continue to save for a down payment.
c.
Luis is not eligible for a loan; he should look for a cheaper house.
d.
Luis is not eligible for a loan; he should reduce his recurring debt.



Please select the best answer from the choices provided


A
B
C
D

Answer 1

A

Workings:
- Monthly gross income = 91,500 / 12 = $7,625.
- 28% housing limit = 0.28 × 7,625 = $2,135 → mortgage $2,100 ≤ $2,135 (ok).
- Total debt = 2,100 + 370 + 165 + 45 = $2,680.
- 36% total-debt limit = 0.36 × 7,625 = $2,745 → $2,680 ≤ $2,745 (ok).
- 20% down = 0.20 × 315,000 = $63,000 and Luis has $65,000 (ok).

Therefore Luis is eligible for the loan.