A mortgage applicant who has a monthly gross income of $2,780 applies for a mortgage with a monthly PITI of $689.44. The applicant's other financial obligations total $405.88 per month. If the lending ratio guidelines are as given in the table below, what type of mortgage, if any, would the applicant qualify for? $$\begin{array} { | l | l | l | }
\hline \text { Mortgage Type } & \text { Housing Expense Ratio } & \text { Total Obligations Ratio } \
\hline \text { FHA } & 29 \% & 41 \% \
\hline \text { Conventional } & 28 \% & 36 \% \
\hline
\end{array}$$

Question

A mortgage applicant who has a monthly gross income of $2,780 applies for a mortgage with a monthly PITI of $689.44. The applicant's other financial obligations total $405.88 per month. If the lending ratio guidelines are as given in the table below, what type of mortgage, if any, would the applicant qualify for? $$\begin{array} { | l | l | l | } 
\hline \text { Mortgage Type } & \text { Housing Expense Ratio } & \text { Total Obligations Ratio } \
\hline \text { FHA } & 29 \% & 41 \% \
\hline \text { Conventional } & 28 \% & 36 \% \
\hline
\end{array}$$

Quizplus · Accepted Answer

The applicant's housing expense ratio for the mortgage (PITI / gross income) is $689.44 / $2,780 = 24.8%, and the total obligations ratio (PITI + other obligations) / gross income is ($689.44 + $405.88) / $2,780 = 39.3%. These ratios fall within the FHA guidelines (29% and 41%, respectively) but not within the conventional guidelines (28% and 36%, respectively), so the applicant qualifies for an FHA mortgage only.

A Mortgage Applicant Who Has a Monthly Gross Income of $2,780