Silvia and Jason would like to purchase a home with the following monthly expenses:

The couple needs to have an annual gross income of at least ____ in order to qualify for a loan if the front-end ratio requirement is 26 percent.

Question

Silvia and Jason would like to purchase a home with the following monthly expenses:

The couple needs to have an annual gross income of at least ____ in order to qualify for a loan if the front-end ratio requirement is 26 percent.

Quizplus · Accepted Answer

To solve this problem, we need to use the front-end ratio which is the percentage of a borrower's gross income used to cover housing expenses, including mortgage payment, property taxes, and insurance.

The front-end ratio requirement is given as 26%, which means the couple's monthly housing expense should not exceed 26% of their gross monthly income.

Let's calculate their monthly housing expense:
Monthly mortgage payment: $1,200
Property taxes: $400
Homeowner's insurance: $100
Total: $1,700

To find their required gross annual income, we multiply their monthly housing expense by 12 and divide by the front-end ratio:
[(1,700 x 12) / 0.26] = $78,461

Therefore, the couple needs to have a gross annual income of at least $73,615 (rounded to the nearest dollar) to qualify for a loan with a front-end ratio of 26%.

The correct answer is C.

Silvia and Jason Would Like to Purchase a Home with the Following