Mortgage Loan Originator (MLO) Licensing Practice Test

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Prepare for the Mortgage Loan Originator Licensing Test. Utilize diverse question formats, including flashcards and multiple choice, with detailed explanations. Gear up for your MLO exam with comprehensive study material!

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If Emmett and Jane have a monthly income of $6,780 and a PITI payment of $1,756, what is their Front-end Ratio?

The correct answer is: 26%

To determine the Front-end Ratio, you take the total monthly housing expenses (which includes PITI: Principal, Interest, Taxes, and Insurance) and divide it by the total monthly income. In this case, Emmett and Jane's monthly PITI payment is $1,756, and their total monthly income is $6,780. The calculation for the Front-end Ratio is: Front-end Ratio = (PITI / Monthly Income) x 100 Plugging in the values: Front-end Ratio = ($1,756 / $6,780) x 100 Calculating this gives: Front-end Ratio = 0.2586 x 100 = 25.86% When rounded, this figure typically would be reported as 26%. This metric is crucial because it indicates what percentage of a borrower’s income is spent on housing costs. A lower Front-end Ratio is generally more favorable, as it suggests that the borrower has a better ability to manage housing expenses without placing a strain on other financial obligations. In this context, while other percentages might represent different hypothetical scenarios or calculations, the Front-end Ratio reflecting Emmett and Jane's situation is most accurately approximated as 26%.