Finance
What is the 'debt-to-income ratio' (DTI) and why is it important to Pennsylvania mortgage applicants?
AThe ratio of a property's debt to its appraised value, used to calculate property tax
BThe borrower's total monthly debt payments divided by gross monthly income, used by lenders to assess repayment ability✓ Correct
CThe ratio of a buyer's down payment to the total purchase price
DThe percentage of a property's assessed value that is eligible for tax exemption in Pennsylvania
Explanation
Debt-to-income ratio (DTI) is calculated by dividing the borrower's total monthly debt payments — including the proposed housing payment plus all recurring debts — by gross monthly income. Conventional loan guidelines generally limit total DTI to 43% to 45%, though some programs allow higher ratios with compensating factors. A high DTI indicates the borrower may be overextended and poses greater default risk. Pennsylvania buyers should review their DTI before applying for a mortgage to avoid surprises during underwriting.
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