Question 1: Calculate the front-end ratio. Provide the formula in your answer. Question 2: Calculate the back-end ratio. Provide the formula in your answer. Question 3: Can Jermain... Question 1: Calculate the front-end ratio. Provide the formula in your answer. Question 2: Calculate the back-end ratio. Provide the formula in your answer. Question 3: Can Jermaine and LaBrea afford to purchase their dream home? Question 4: Suppose Jermaine and LaBrea decide to put 20% down to purchase the home. The increased down payment will reduce the total of their principal and interest, real estate taxes, and homeowners’ insurance to $2,090.30. Calculate the new front-end and back-end ratios.
Understand the Problem
The questions are asking us to calculate the front-end and back-end ratios for Jermaine and LaBrea's mortgage situation, including determining their affordability for the home. We need to use their income and payment information to compute these ratios and analyze their financial situation based on the given data.
Answer
Please provide the required income and payment details to calculate the ratios.
Answer for screen readers
To provide the final answer, please supply the necessary income and payment information for Jermaine and LaBrea.
Steps to Solve
- Calculate Monthly Gross Income
To compute the front-end and back-end ratios, we first need to find Jermaine and LaBrea's monthly gross income. If their annual income is ( I ), the monthly gross income ( M ) can be calculated as:
$$ M = \frac{I}{12} $$
- Calculate Front-End Ratio
The front-end ratio is calculated to determine what portion of their income will go towards housing expenses. If their monthly housing expenses are ( H ), the formula for the front-end ratio ( F ) is:
$$ F = \frac{H}{M} $$
- Calculate Back-End Ratio
The back-end ratio considers all monthly debt payments. If their total monthly debt payments (including housing expenses) are ( D ), the back-end ratio ( B ) is calculated as follows:
$$ B = \frac{D}{M} $$
- Determine Affordability Indicator
Typically, lenders prefer a front-end ratio of 28% or less and a back-end ratio of 36% or less. Evaluate the calculated ratios to determine if Jermaine and LaBrea are within acceptable limits.
To provide the final answer, please supply the necessary income and payment information for Jermaine and LaBrea.
More Information
The front-end and back-end ratios are crucial for assessing mortgage affordability. A lower ratio indicates better financial health and may increase the chances of loan approval.
Tips
- Failing to convert annual income to monthly income properly.
- Including non-housing expenses in the front-end ratio calculation.
- Miscalculating total monthly debt.
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