Check your understanding

Check your understanding of key concepts before moving to the “Do it yourself” section.

1. The amount you can afford to pay for a house depends on …






The correct answer is F. The amount you can afford to pay for a house depends on your income, the amount you must continue to pay on other debts, the amount of cash you have for the down payment and closing costs, and the interest rates available to you.
The correct answer is F. The amount you can afford to pay for a house depends on your income, the amount you must continue to pay on other debts, the amount of cash you have for the down payment and closing costs, and the interest rates available to you.

2. The Affordability Calculator assumes that you can afford to spend …



The correct answer is C. The calculator estimates that you can afford to spend 28% of your income on housing, and 36% of your income on housing + other debts. 28% and 36% are the ratios traditionally used by lenders to determine how much a borrower can afford.
The correct answer is C. The calculator estimates that you can afford to spend 28% of your income on housing, and 36% of your income on housing + other debts. 28% and 36% are the ratios traditionally used by lenders to determine how much a borrower can afford.

3. The 28% housing expense ratio and 36% total expense ratio …





The correct answer is E. If your ratios are higher than 28% or 36% lenders might deny your mortgage application. In recent years lenders have been less strict, sometime approving mortgages for borrowers with ratios up to even 10% higher than the 28% or 36% limits. However, lenders have returned to more conservative lending standards, once again using the 28% or 36% limits as a starting point.
The correct answer is E. If your ratios are higher than 28% or 36% lenders might deny your mortgage application. In recent years lenders have been less strict, sometime approving mortgages for borrowers with ratios up to even 10% higher than the 28% or 36% limits. However, lenders have returned to more conservative lending standards, once again using the 28% or 36% limits as a starting point.

Practice what you learned Do it yourself

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