Question

joey would like to apply for a loan but knows that his high debt-to-income (dti) ratio will probably get in his way. he would like to lower his dti ratio by lowering the amount of his gross monthly income that goes to living expenses.

joeys current monthly expenses include a rent payment of \\$1,100, a \\$178 car payment, and a combined minimum payment of \\$220 for his credit card debt. his current gross monthly income is \\$3,600. if joey moves to a new apartment, what is the maximum monthly rent payment he can make and still maintain a dti ratio of 36\\%?
a. \\$702
b. \\$898
c. \\$922
d. \\$960

Explanation:

Calculate maximum allowable monthly debt payments

Using the Debt-to-Income Ratio knowledge point

$$ \text{Max Monthly Debt} = \$3,600 \times 0.36 = \$1,296 $$

Calculate non-rent monthly debt obligations

Using the Debt-to-Income Ratio knowledge point

$$ \text{Other Debt} = \$178 + \$220 = \$398 $$

Determine maximum monthly rent payment

Using the Debt-to-Income Ratio knowledge point

$$ \text{Max Rent} = \$1,296 - \$398 = \$898 $$

Answer:

• a. $702
• b. $898 (Correct answer)
• c. $922
• d. $960