Question

You work for a lending institution and are tasked with whether or not to approve a home loan, using the standard 28/36 ratio.
The loan application is for $230,000. You see that the applicant has an annual salary of $83,000. The applicant also has a car payment of $315, a student loan of $140 and a boat loan of $96.
How likely are you to approve the loan?
a.
Very likely; recurring debt is considerably less than what is allowed.
b.
Somewhat likely; recurring debt is very close to what is allowed.
c.
Not likely; recurring debt is higher than what is allowed.
d.
There is not enough information given to determine the answer.



Please select the best answer from the choices provided


A
B
C
D

Answer 1

B

Workings:
- Gross monthly income = 83,000 / 12 = 6,916.67
- 28% housing limit = 0.28 × 6,916.67 = $1,936.67
- 36% total-debt limit = 0.36 × 6,916.67 = $2,490.00
- Existing recurring debts = 315 + 140 + 96 = $551
- Available for housing under 36% = 2,490 − 551 = $1,939 (essentially equal to the 28% limit)

Because the available housing amount is nearly equal to the 28% limit, recurring debt is very close to allowed — somewhat likely.