Finance
What is the 'debt-to-income ratio' (DTI) and how does it affect Pennsylvania mortgage qualification?
AThe ratio of a borrower's mortgage balance to the appraised value of their home
BThe ratio of a borrower's total monthly debt payments to gross monthly income, used by lenders to assess repayment ability✓ Correct
CThe ratio of property taxes to the homeowner's gross income
DA Pennsylvania-specific calculation for determining maximum purchase price
Explanation
DTI measures the percentage of gross monthly income consumed by debt payments. Conventional loans typically require a maximum DTI of 43–45%; FHA allows up to 57% 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.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Math Concepts
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