Finance
What is the debt-to-income (DTI) ratio, and why is it important to mortgage lenders?
AThe ratio of a borrower's assets to their liabilities; lenders use it to verify net worth
BThe ratio of a borrower's monthly debt payments to gross monthly income; lenders use it to assess repayment ability✓ Correct
CThe ratio of the loan amount to the appraised value; lenders use it to determine LTV
DThe ratio of monthly rent to monthly income; lenders use it to qualify first-time buyers
Explanation
DTI compares a borrower's total monthly debt obligations (including the proposed mortgage payment) to their gross monthly income. Most conventional lenders prefer a total DTI below 43-45%, though FHA and VA programs may allow higher ratios with compensating factors.
Related California Finance Questions
- In California, the non-judicial foreclosure process under a deed of trust is initiated by recording a:
- What is a HELOC?
- A deed of trust in California has three parties. Which of the following correctly identifies all three?
- The 'due-on-sale' clause in a mortgage requires:
- What is PMI and when is it typically required?
- What is a 'due-on-sale' clause?
- Under the Community Reinvestment Act (CRA), banks are required to:
- What is the purpose of RESPA (Real Estate Settlement Procedures Act)?
Practice More California Real Estate Questions
1,500+ questions covering all exam topics. Start free — no signup required.
Take the Free California Quiz →