Question

Suppose a single person earns $50,700 per year and also has other monthly installment obligations of $550. The purchase of a home requires a 5% down payment and an escrow of 3.2% per year to cover property taxes and hazard insurance. Private mortgage insurance (PMI) of .78% of the loan value per year is also required. The loan underwriter will apply a DTI (debt-to-income) or “back ratio” of 43%. The 30-year monthly loan payment factor is .004774 for a loan at 4% interest per year. This person can afford a home priced at:

$521,669

$260,834

$169,500

$162,000

Answer 1

	A	DTI(Debt to Income Ratio)	43%
	B	Annual Income	$50,700
	C=A*B	Total Monthly Debt Expense	$21,801
		Assume , Home Priced at =X
		Down Payment =5%
		Loan amount =0.95X
	D	Annual Loan Repayment =12*0.004774*0.95X	0.0544236	*X
	E	Escrow Amount (3.2%)	0.032	*X
	F	Private Mortgage Insurance =0.0078*0.95X	0.00741	*X
	G=D+E+F	Total Payment for the property	0.0938336	*X
		Other Debt Obligation=550*12	$6,600
		Total Monthly Debt Expense=0.093834X+6600=	$21,801
		0.093834X=21801-6600=	$15,201
		X=15201/0.093834=	$162,000
		ANSWER:
		$162,000