Finance
A borrower has a gross monthly income of $6,000. Using a 28% front-end ratio, what is the maximum monthly housing payment the lender will typically approve?
A$1,440
B$1,540
C$1,680✓ Correct
D$1,800
Explanation
Maximum housing payment = $6,000 x 0.28 = $1,680 per month.
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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.
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