Finance
A borrower's debt-to-income (DTI) ratio is 45%. Most conventional loan guidelines prefer a DTI of no more than:
A28%
B36%
C43%✓ Correct
D50%
Explanation
The Consumer Financial Protection Bureau's Qualified Mortgage (QM) standard and most conventional lenders prefer a total (back-end) DTI of no more than 43%, though some loans allow up to 45–50% with compensating factors.
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Key Terms to Know
Debt-to-Income Ratio (DTI)
A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Math Concepts
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