Question

bessie has an annual salary of $51,360. each month she has a car payment of $210 and a student loan of $50. if she applies for a home loan, how likely is it bessie will be approved based on her debt - to - income ratio?
a. very likely: recurring debt is less than what is allowed.
b. somewhat likely: recurring debt is equal to what is allowed.
c. not likely: recurring debt is higher than what is allowed.
d. there is not enough information given to determine the answer.
please select the best answer from the choices provided

Explanation:

Step1: Calculate monthly income

First, convert annual salary to monthly income by dividing by 12.
$\text{Monthly Income} = \frac{\$51,360}{12} = \$4,280$

Step2: Calculate total monthly debt

Sum the monthly car payment and student loan payment.
$\text{Total Monthly Debt} = \$210 + \$50 = \$260$

Step3: Calculate debt-to-income ratio

Divide total monthly debt by monthly income, then convert to a percentage.
$\text{Debt-to-Income Ratio} = \frac{\$260}{\$4,280} \times 100 \approx 6.07\%$

Step4: Evaluate loan approval likelihood

Standard acceptable front-end debt-to-income ratios for home loans are typically up to ~28%, and this ratio is well below that threshold, with recurring debt far under the allowed limit.

Answer:

a. Very likely; recurring debt is less than what is allowed.