Question

Suppose that you have an annual gross income of $72,000 ($6,000 per month), you're currently paying a car loan of $400 per month, and you're interested in a house with total PITI payments of $1,500 per month. Suppose that the affordability ratio based upon total installment loan payments per month equals 0.36. Therefore, what relationship must hold for you to successfully qualify for that mortgage?

	a.	$1,500 < (0.36)($6000)
	b.	$1,500 > (0.36)($6000)
	c.	$1,500 + $400 < (0.36)($6,000)
	d.	$1,500 + $400 > (0.36)($6,000)
	e.	$6,000 < (0.36)($1500 + $400)

Perkins and Stafford loans are subsidized by the federal government and more attractive to borrowers than PLUS loans. So compared to PLUS loans, Perkins and Stafford loans

	a.	have a higher interest rate and more restrictive borrowing limits.
	b.	have a higher interest rate and less restrictive borrowing limits.
	c.	have a lower interest rate and more restrictive borrowing limits.
	d.	have a lower interest rate and less restrictive borrowing limits.
	e.	have the same interest rate and borrowing limits.

In the context of credit card usage, "snowballing" is a strategy that entails

	a.	not using credit cards at all.
	b.	declaring bankruptcy.
	c.	making equal percentage payments on all credit card balances.
	d.	making the minimum payments on all credit cards, with the remaining amount placed on the card with the lowest balance.
	e.	making the minimum payments on all credit cards, with the remaining amount being used for household consumption.

Answer 1

1).

To successfully qualify for the mortgage, the installment loan payments for a month should be less fhan the affordable ratio applied on the monthly income.

So, $1500+$400< 0.36*$6000 (Option c)

2).

Compared to PLUS loans, Perkins and Stafford loans have a lower interest rate and less restrictive borrowing limits (Option d)

3).

In credit card terms , snowballing means

making the minimum payments on all credit cards, with the remaining amount placed on the card with the lowest balance (Option d)