New York Real Estate Salesperson ExaminationFinancingHard
A buyer is applying for a mortgage. The lender calculates the buyer's housing expense ratio by dividing their proposed monthly housing expenses (PITI) by their gross monthly income. If the lender's guideline is a maximum housing expense ratio of 28%, what is the maximum allowable PITI for a buyer with a gross monthly income of $7,500?
- A$2,250
- B$1,875
- C$2,100
- D$2,400
Show answer & explanationAnswer & explanation
Correct answer: C. $2,100
The maximum allowable PITI is calculated by multiplying the gross monthly income by the maximum housing expense ratio. So, $7,500 (gross monthly income) * 0.28 (28% ratio) = $2,100.
Why the other options are wrong
- A. $7,500 * 0.30 = $2,250 (incorrect ratio).
- B. $7,500 * 0.25 = $1,875 (incorrect ratio).
- D. $7,500 * 0.32 = $2,400 (incorrect ratio).
Housing Expense Ratio (Front-End Ratio)
A debt-to-income ratio that compares a borrower's total monthly housing expenses (Principal, Interest, Taxes, Insurance - PITI) to their gross monthly income.
- Calculated as PITI / Gross Monthly Income.
- Lenders use this to assess affordability.
- Commonly has a maximum limit (e.g., 28%).
Memory trick: PITI over Income: Your house payment can't be too high for your salary.