Finance
A Minnesota buyer's debt-to-income ratio exceeds conventional loan limits. Which loan program might allow this buyer to qualify with a higher DTI?
AA conventional jumbo loan
BAn FHA loan, which allows higher DTI ratios with compensating factors✓ Correct
CA USDA rural loan
DA state MHFA loan without any income verification
Explanation
FHA loans allow higher debt-to-income ratios than conventional loans, particularly with compensating factors such as substantial cash reserves, a larger down payment, or excellent credit. In Minnesota, FHA loans are an option for borrowers who have difficulty qualifying for conventional financing due to income, credit, or DTI constraints.
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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.
Pre-ApprovalA lender's conditional commitment to loan a specific amount to a borrower, based on verified income, credit, and assets.
Math Concepts
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