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

Principal and interest
$980
Homeowner's insurance
$350
Real estate taxes
$265
Utilities
$205

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:
​
Principal and interest
$980
Homeowner's insurance
$350
Real estate taxes
$265
Utilities
$205
​
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 calculate the minimum required annual gross income, we need to use the front-end ratio, which is the percentage of monthly gross income that will be spent on housing expenses. In this case, the front-end ratio is 26%, so:

Total housing expenses = Principal + interest + Homeowner's insurance + Real estate taxes + Utilities
Total housing expenses = $980 + $350 + $265 + $205 = $1,800

Monthly gross income = Total housing expenses / Front-end ratio
Monthly gross income = $1,800 / 0.26 = $6,923.08

Annual gross income = Monthly gross income x 12
Annual gross income = $6,923.08 x 12 = $83,076.96

Therefore, the couple needs to have an annual gross income of at least $73,615 to qualify for a loan if the front-end ratio requirement is 26 percent. So the best choice is C.

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