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Qualifying for a Home Loan
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How much annual income would you need to have if, using the 28/36 ratio, your maximum allowable recurring debt is
\($500?
a. $\)21,430
b. \($30,000
c. $\)62,500
d. $75,000
Please select the best answer from the choices provided
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Verified Answer :

GinnyAnswer

To determine the annual income needed if the maximum allowable recurring debt is \($500 under the 28/36 ratio, follow these steps: 1. Understand the 28/36 ratio: - The 28/36 ratio is a guideline that suggests no more than 36% of your monthly income should go towards all your debt payments, including housing. 2. Identify the maximum allowable debt: - The problem states that the maximum allowable recurring debt is $\)500.

3. Calculate the monthly income:
- Since 36% of your monthly income is allocated to debt, you can set up the equation:
\(\[ 0.36 \times \text{{monthly income}} = 500 \]\)
- Solving for the monthly income:
\(\[ \text{{monthly income}} = \frac{500}{0.36} \approx 1388.89 \]\)

4. Convert the monthly income to annual income:
- Multiply the monthly income by 12 (months in a year) to find the annual income:
\(\[ \text{{annual income}} = 1388.89 \times 12 \approx 16666.67 \]\)

After determining the annual income, we look for the closest choice provided in the options:

- \(\( a. \$21,430 \)\)
- \(\( b. \$30,000 \)\)
- \(\( c. \$62,500 \)\)
- \(\( d. \$75,000 \)\)

Since the calculated annual income is approximately \(\( \$16,666.67 \)\), none of the listed choices precisely match. Thus, it appears there might be an error in the provided choices or a misinterpretation of the problem constraints. Based on our calculations, the required annual income to support a \($500 maximum monthly debt under a 36% debt-to-income ratio is closest to approximately $\)16,667, which is different from the options given.

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