Check your understanding

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

Indicate whether each statement is True or False.

1. Your main concern when determining how much house you can afford should be the likelihood of foreclosure.

Correct! You should establish your own spending limits that allow you to continue saving, and to continue to live a lifestyle that makes you happy.
Incorrect. You should establish your own spending limits that allow you to continue saving, and to continue to live a lifestyle that makes you happy.

2. Say your rent is $1,000, your other fixed expenses are $400 per month and your gross income is $4,200 per month. Your housing expense ratio = 33%.

Correct! Your housing expense ratio is $1,000/$4,200 = 23.8%.
Incorrect. Your housing expense ratio is $1,000/$4,200 = 23.8%.

3. Say your rent is $1,600, your other expenses are $400 per month and your gross income is $4,000 per month. Your total expense ratio = 40%.

Correct! Your total expense ratio is $2,000/$4,000 = 50%.
Incorrect. Your total expense ratio is $2,000/$4,000 = 50%.

4. If your ratios are 30 over 38, higher than the traditional 28 over 36, your mortgage might still get approved today.

Correct! Your qualifying ratios are important but they are not the only factor used to make your loan approval decision. Even if the ratios are higher than the traditional 28 over 36, you might still be approved. The rules are somewhat flexible.
Incorrect. Your qualifying ratios are important but they are not the only factor used to make your loan approval decision. Even if the ratios are higher than the traditional 28 over 36, you might still be approved. The rules are somewhat flexible.

5. Your goal should be to establish your own spending limits that allow you to continue saving, and to continue to live a lifestyle that makes you happy while owning your home.

Correct! If you have no money left after making your mortgage payment and covering your fixed expenses each month then you have stretched too much to buy your home.
Incorrect. If you have no money left after making your mortgage payment and covering your fixed expenses each month then you have stretched too much to buy your home.

Practice what you learned Do it yourself

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