Real Estate Math
A lender requires a maximum 43% debt-to-income (DTI) ratio. A borrower has monthly debt payments of $750 and gross monthly income of $5,800. Can they add a mortgage payment of $1,200?
AYes, their total DTI would be about 33.6%
BNo, their total DTI would exceed 43%
CYes, their total DTI would be about 39%✓ Correct
DNo, their total DTI would be about 45%
Explanation
Total monthly debts = $750 + $1,200 = $1,950. DTI = $1,950 ÷ $5,800 = 0.
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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.
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.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Math Concepts
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