Finance
What is the debt-to-income (DTI) ratio and how does it affect Illinois mortgage qualification?
AThe ratio of investment debt to gross assets; must be under 50%
BThe ratio of monthly debt payments to gross monthly income; lenders use it to assess borrowing capacity✓ Correct
CThe ratio of property tax to income; set by Illinois law
DThe ratio of mortgage balance to appraised value; also called loan-to-value
Explanation
The debt-to-income ratio is calculated by dividing total monthly debt payments (including the proposed mortgage payment) by gross monthly income. Lenders use DTI to assess whether a borrower can manage monthly payments. Conventional loans typically allow a maximum DTI of 43-50%, while FHA loans may allow higher ratios with compensating factors.
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