A first-time buyer has a gross monthly income of $3,000. According to Fannie Mae's standard qualifying ratios, what is the total housing expense (principal, interest, taxes, and insurance) he can bear?

A first-time buyer has a gross monthly income of $3,000. According to Fannie Mae's standard qualifying ratios, what is the total housing expense (principal, interest, taxes, and insurance) he can bear?

• A. $11,300
• B. $9,000
• C. $13,000
• D. $6,000

Answer: (A)

The test is about how Fannie Mae sets qualifying limits using ratios. The housing expense ratio, which applies to the total PITI (principal, interest, taxes, and insurance), is typically 28% of gross monthly income. So, with a gross monthly income of 3,000, the maximum monthly housing payment allowed is 0.28 × 3,000 = 840. If you prefer to think in annual terms, that’s 840 × 12 = 10,080 per year. The options listed don’t match this standard calculation exactly, since the correct figure under the 28% rule is 840 monthly (or 10,080 annually).

The test is about how Fannie Mae sets qualifying limits using ratios. The housing expense ratio, which applies to the total PITI (principal, interest, taxes, and insurance), is typically 28% of gross monthly income. So, with a gross monthly income of 3,000, the maximum monthly housing payment allowed is 0.28 × 3,000 = 840.

If you prefer to think in annual terms, that’s 840 × 12 = 10,080 per year. The options listed don’t match this standard calculation exactly, since the correct figure under the 28% rule is 840 monthly (or 10,080 annually).