Finance
A Kentucky borrower's front-end DTI is 26% and back-end DTI is 38%. The lender's conventional loan guidelines require a maximum back-end DTI of 36%. The borrower:
AQualifies because the front-end ratio is within limits
BDoes not qualify due to exceeding the back-end DTI limit✓ Correct
CQualifies automatically with a 20% down payment
DMust apply for an FHA loan instead
Explanation
The back-end (total) DTI of 38% exceeds the lender's guideline of 36%, so the borrower does not qualify under conventional guidelines as stated, regardless of the front-end ratio.
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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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