Question

you work for a lender that requires a 20% down payment and uses the standard debt-to-income ratio to determine a persons eligibility for a home loan. of the following, choose the person that you would rate the highest on their eligibility for a home loan.

	person a	person b	person c	person d
home value	$175,000	$200,000	$220,000	$250,000
income	$51,000	$58,000	$63,000	$67,000
savings	$35,000	$40,000	$42,000	$50,000
recurring debt	$350	$250	$200	$450

a. person a
b. person b
c. person c
d. person d

Explanation:

Step1: Calculate required down payment

For each person, compute 20% of home value:

• Person A: $0.20 \times 175000 = 35000$
• Person B: $0.20 \times 200000 = 40000$
• Person C: $0.20 \times 220000 = 44000$
• Person D: $0.20 \times 250000 = 50000$

Step2: Verify down payment affordability

Check if savings ≥ required down payment:

• Person A: $35000 = 35000$ ✔️
• Person B: $40000 = 40000$ ✔️
• Person C: $42000 < 44000$ ❌ (ineligible)
• Person D: $50000 = 50000$ ✔️

Step3: Calculate monthly income

Divide annual income by 12:

• Person A: $\frac{51000}{12} = 4250$
• Person B: $\frac{58000}{12} \approx 4833.33$
• Person D: $\frac{67000}{12} \approx 5583.33$

Step4: Calculate debt-to-income ratio

Divide monthly recurring debt by monthly income:

• Person A: $\frac{350}{4250} \approx 0.0824$ (8.24%)
• Person B: $\frac{250}{4833.33} \approx 0.0517$ (5.17%)
• Person D: $\frac{450}{5583.33} \approx 0.0806$ (8.06%)

Step5: Compare eligible candidates

Lower ratio = higher eligibility: Person B has the lowest ratio.

Answer:

b. Person B