Finance
The debt-to-income (DTI) ratio for conventional loan qualification is typically limited to:
A28% front end and 36% back end✓ Correct
B31% front end and 43% back end
C20% front end and 30% back end
D45% front end and 50% back end
Explanation
Conventional loan guidelines typically look for a front-end ratio (housing costs ÷ gross income) of 28% and a back-end ratio (all debts ÷ gross income) of 36%, though lenders may allow higher ratios with compensating factors.
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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.
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.
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.
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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