Question

Bob is a 28-year-old, unmarried man and the assistant manager of a grocery store. He jokes about working at the grocery store just to get his employee discount because his Great Dane eats about $50 worth of dog food a week! For the past five years, he's also been a volunteer firefighter, drawing on his Navy training. Bob is really proud of his condo, and is happy he'll have his big screen TV paid off in a couple months because he wants to buy a new laptop computer.

**Bob has the following monthly income and total
expenses:**

Gross monthly income: $5,300

Monthly principal and interest (including any PMI): $1,270

Monthly homeowners association fee: $100

Annual property taxes: $3,278

Annual homeowners insurance: $650

Monthly auto payment: $295

Semi-annual auto insurance: $700

Average monthly gasoline expense: $200

Monthly installment payment on the TV: $97

Average monthly utilities: $250

Monthly Internet/phone/cable TV: $200

Bruno's dog food and tennis balls: $250

Long Answer

Assignment Questions: (answer in your own words, do not cut
& paste!)

1. What is Bob's housing (front-end) ratio? Show in detail how you
calculated this.

2. What is his debt-to-income (back-end) ratio? Show in detail how
you calculated this.

Without considering any compensating factors...

3. What is the maximum allowable housing ratio for a conforming
loan?

4. What is the maximum allowable debt-to-income ratio for a
conforming loan?

5. What is the maximum allowable housing ratio for an FHA
loan?

6. What is the maximum allowable debt-to-income ratio for an FHA
loan?

7. What is the maximum allowable debt-to-income ratio for a VA
loan?

8. Which, if any, of these three types of loans does Bob qualify
for?

Answer #1

1) housing (front-end) ratio = total monthly housing cost divided by gross monthly income

housing (front-end) ratio = ( $1,270 + $100 + $3,278 + $650 ) $5,300

housing (front-end) ratio = $ 5298 $5,300

housing (front-end) ratio = 0.9996

_______________________________________________________________________

2) debt-to-income (back-end) ratio = ( monthly housing cost + debts ) gross monthly income

debt-to-income (back-end) ratio = ( $1,270 + $100 + $3,278 + $650 + $ 295 + $ 97 ) $5,300

debt-to-income (back-end) ratio = 1.07358

___________________________________________________________________________

3) Maximum allowable housing ratio for a conforming loan being around 30% / 40%

____________________________________________________________________________

4) Maximum allowable total debt-to-income ratio for a conforming loan would be 41 percent.

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