Jill and Ray have combined annual gross earnings of $36,700. What is the
maximum amount they should consider spending for the purchase of a
house?
a. $36,700
b. $91,750
c. $73,400
d. $63,570
The general rule of thumb is that the maximum amount spent on housing should not exceed 30% of one's gross income. Therefore, 30% of $36,700 is $11,010. This is the maximum amount they should consider spending on housing, so the answer is not listed. However, if we assume that they are willing to push it a bit further, the closest option would be c. $73,400, which is approximately 2 times their combined gross income.
To determine the maximum amount they should consider spending for the purchase of a house, we need to calculate a common rule of thumb which is the 30% of their combined annual gross earnings.
Step 1: Calculate 30% of their combined annual gross earnings.
30% of $36,700 = $36,700 * 0.30 = $11,010
Therefore, the maximum amount they should consider spending for the purchase of a house is $11,010.
So, none of the given options (a, b, c, d) match the correct answer.
To determine the maximum amount Jill and Ray should consider spending for the purchase of a house, we need to consider various factors such as their income and financial stability. One common guideline is to base this amount on a percentage of their annual income.
A commonly used benchmark is that the cost of a home should not exceed 2.5 to 3 times the borrowers' combined annual gross income.
Step 1: Calculate the maximum amount based on the guideline:
Maximum House Price = (Combined Annual Gross Income) * (Maximum Affordability Factor)
The maximum affordability factor is usually between 2.5 and 3.
Step 2: Plug in the values:
Combined Annual Gross Earnings = $36,700
Maximum Affordability Factor = 2.5 to 3
Let's calculate:
Maximum House Price = $36,700 * 2.5 to 3
Maximum House Price = $91,750 to $110,100
Therefore, the maximum amount Jill and Ray should consider spending for the purchase of a house is between $91,750 and $110,100.
Looking at the answer choices, the closest option is b. $91,750.