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13 December, 22:01

Alisha has a monthly income of $4,500. She wants to purchase a house that will have an estimated monthly mortgage payment of $750, annual property tax of $1,500, and an annual insurance premium of $600. Use the front-end ratio to determine whether Alisha will be approved for the loan. Alisha be approved for the loan because her front-end ratio is 28%.

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  1. 14 December, 01:51
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    Loan will be approved

    Explanation:

    To calculate front end ratio, we use following formula

    Front-end DTI = (house expenses/monthly grass income) x 100

    House expenses = monthly mortgage payment + monthly property tax + monthly insurance premium

    Monthly house expenses = 750 + (1500/12) + (600/12)

    Monthly house expenses = 750 + 125 + 50

    Monthly house expenses = $925

    Putting all values in above formula

    Front-end DTI = (monthly house expenses/monthly gross income) x 100

    Front-end DTI = (925/4500) x 100

    Front-end DTI = 20.6%

    Alisha's loan will be approved because her front-end DTI is less than the required for loan
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