Question

A borrower’s stable monthly income is $3,000. He has three monthly debts: $350 car payment, $50 personal loan payment, and $50 credit card payment. What is the maximum monthly mortgage payment he would qualify for on a conventional loan?

Answer 1

Answer:

$630

Explanation:

The highest debt to ratio accepted by commercial banks that offer conventional loans is 36%.  Some financial institutions may accept up to 43% debt to ratio, but the interest rates that they charge are higher (subprime interest rates).

We should use the 36% ratio to calculate the maximum monthly mortgage payment:

($3,000 x 36%) - ($350 + $50 + $50) = $1,080 - $450 = $630