National Real Estate Exam (PSI)FinancingMedium
A loan applicant has a gross monthly income of $6,000 and total monthly debt obligations (including proposed housing payment) of $2,100. The lender's maximum allowable back-end debt-to-income ratio is 36%. Does the applicant meet this qualifying ratio?
- ANo, because the ratio is 38%
- BYes, because the ratio is 35%
- CNo, because the ratio is 42%
- DYes, because the ratio is 30%
Show answer & explanationAnswer & explanation
Correct answer: B. Yes, because the ratio is 35%
Divide total monthly debt by gross monthly income: $2,100 ÷ $6,000 = 0.35, or 35%. Since 35% is less than the lender's 36% maximum, the applicant qualifies under the back-end ratio guideline.
Why the other options are wrong
- A. 38% is an incorrect calculation that exceeds the limit.
- C. 42% is incorrect math and would fail the ratio anyway.
- D. 30% understates the actual ratio calculated.
Debt-to-Income (DTI) Ratio
The percentage of a borrower's gross monthly income used to pay total monthly debt obligations, used by lenders to assess qualification.
- Back-end ratio includes all debts, not just housing
- Front-end ratio includes only housing expense
- Conventional loans often cap back-end DTI around 36-43%
Memory trick: Debts over income, keep it below the line.