Ben Makes $39,600 A Year. What Is The Maximum Amount He Can Afford For A Mortgage Each Month? A. $825 B. $890 C. $850 D. $875
Understanding the 28/36 Rule
When it comes to determining how much a person can afford to spend on a mortgage each month, there are several factors to consider. One of the most widely used guidelines is the 28/36 rule. This rule suggests that a person's housing costs should not exceed 28% of their gross income, and their total debt payments should not exceed 36% of their gross income.
Calculating Ben's Gross Income
Ben makes $39,600 a year. To calculate his gross income, we can simply use this number. However, to apply the 28/36 rule, we need to calculate his monthly gross income.
$39,600 per year ÷ 12 months per year = $3,300 per month
Applying the 28/36 Rule
Now that we have Ben's monthly gross income, we can apply the 28/36 rule to determine the maximum amount he can afford to spend on a mortgage each month.
Housing Costs (28% of Gross Income)
To calculate the maximum amount Ben can afford to spend on housing costs, we can multiply his monthly gross income by 0.28.
$3,300 per month x 0.28 = $924 per month
Total Debt Payments (36% of Gross Income)
To calculate the maximum amount Ben can afford to spend on total debt payments, we can multiply his monthly gross income by 0.36.
$3,300 per month x 0.36 = $1,184 per month
Calculating the Maximum Mortgage Affordability
Now that we have the maximum amount Ben can afford to spend on housing costs and total debt payments, we can calculate the maximum amount he can afford to spend on a mortgage each month.
Assuming Ben has other debt payments, such as credit card debt, car loans, and student loans, we can subtract these payments from his total debt payments to determine the maximum amount he can afford to spend on a mortgage.
Let's assume Ben has other debt payments of $300 per month. We can subtract this amount from his total debt payments to determine the maximum amount he can afford to spend on a mortgage.
$1,184 per month - $300 per month = $884 per month
Conclusion
Based on the 28/36 rule, Ben can afford to spend up to $884 per month on a mortgage. This amount is based on his monthly gross income and other debt payments. However, it's essential to note that this is just a guideline, and Ben's individual financial situation may vary.
Comparison of Options
Now that we have calculated the maximum amount Ben can afford to spend on a mortgage each month, we can compare this amount to the options provided.
A. $825 per month B. $890 per month C. $850 per month D. $875 per month
Based on our calculation, the correct answer is:
B. $890 per month
Q: What is the 28/36 rule, and how does it apply to mortgage affordability?
A: The 28/36 rule is a guideline that suggests a person's housing costs should not exceed 28% of their gross income, and their total debt payments should not exceed 36% of their gross income. This rule is used to determine how much a person can afford to spend on a mortgage each month.
Q: How do I calculate my gross income?
A: To calculate your gross income, you can simply use your annual salary or income. For example, if you make $39,600 per year, your gross income is $39,600.
Q: How do I calculate my monthly gross income?
A: To calculate your monthly gross income, you can divide your annual salary or income by 12. For example, if you make $39,600 per year, your monthly gross income is $3,300.
Q: What other debt payments should I consider when calculating my mortgage affordability?
A: When calculating your mortgage affordability, you should consider all of your debt payments, including:
- Credit card debt
- Car loans
- Student loans
- Personal loans
- Other debt obligations
Q: How do I calculate my total debt payments?
A: To calculate your total debt payments, you can add up all of your monthly debt payments. For example, if you have a credit card debt of $300 per month, a car loan of $200 per month, and a student loan of $400 per month, your total debt payments would be $900 per month.
Q: What is the difference between housing costs and total debt payments?
A: Housing costs refer to the amount you spend on housing expenses, such as your mortgage payment, property taxes, and insurance. Total debt payments refer to the amount you spend on all of your debt obligations, including credit card debt, car loans, student loans, and other debt payments.
Q: How do I determine my maximum mortgage affordability?
A: To determine your maximum mortgage affordability, you can use the 28/36 rule. First, calculate your monthly gross income and multiply it by 0.28 to determine your maximum housing costs. Then, calculate your total debt payments and subtract any other debt payments you have to determine your maximum mortgage affordability.
Q: What if I have other financial obligations, such as alimony or child support?
A: If you have other financial obligations, such as alimony or child support, you should consider these expenses when calculating your mortgage affordability. You can add these expenses to your total debt payments to determine your maximum mortgage affordability.
Q: Can I afford a mortgage if I have a low credit score?
A: Having a low credit score may affect your ability to qualify for a mortgage and the interest rate you will be offered. However, it does not necessarily mean you cannot afford a mortgage. You may want to consider working on improving your credit score before applying for a mortgage.
Q: What are some other factors that can affect my mortgage affordability?
A: Some other factors that can affect your mortgage affordability include:
- Your income stability
- Your employment history
- Your debt-to-income ratio
- Your credit score
- The interest rate on your mortgage
- The length of your mortgage term
Q: How can I determine my mortgage affordability?
A: To determine your mortgage affordability, you can use online mortgage calculators or consult with a mortgage broker or financial advisor. They can help you determine how much you can afford to spend on a mortgage each month based on your individual financial situation.