Stefan and Patricia would like to buy a home,but they aren't sure how large a house payment they can afford.Their combined gross monthly income is $5,000,and they have a $425 education loan payment.Assuming a 38 percent back-end ratio,Stefan and Patricia qualify for a maximum total house payment of

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The back-end ratio is calculated by dividing the total monthly debt payments by the gross monthly income. In this case, the total monthly debt includes the house payment and the education loan payment. With a 38 percent back-end ratio, the maximum amount they can allocate to monthly debt payments is 38% of $5,000, which is $1,900. Subtracting the $425 education loan payment from this amount leaves $1,475 for the house payment.

Stefan and Patricia Would Like to Buy a Home,but They