New York Real Estate Salesperson ExaminationFinancingMedium
A buyer is applying for a mortgage and has a gross monthly income of $6,000. Their proposed monthly housing expenses (principal, interest, taxes, insurance) would be $1,800. Additionally, they have other recurring monthly debts totaling $500 (car payment, credit cards). What is the buyer's debt-to-income (DTI) ratio, and would they likely qualify for a conventional loan requiring a maximum DTI of 36%?
- ADTI = 40%, No, they do not qualify.
- BDTI = 30%, Yes, they qualify.
- CDTI = 36.67%, No, they do not qualify.
- DDTI = 38.33%, No, they do not qualify.
Show answer & explanationAnswer & explanation
Correct answer: D. DTI = 38.33%, No, they do not qualify.
The Debt-to-Income (DTI) ratio is calculated by dividing total monthly debt payments by gross monthly income. Total debt = $1,800 (housing) + $500 (other debts) = $2,300. DTI = $2,300 / $6,000 = 0.3833 or 38.33%. Since 38.33% is greater than the 36% maximum, they would not qualify.
Why the other options are wrong
- A. This calculation is incorrect. The total debt is $2,300, not $2,400.
- B. This calculation only considers housing expenses, not total debt.
- C. This calculation is incorrect. It appears to mistakenly use only housing or miscalculate total debt.
Debt-to-Income (DTI) Ratio
A financial ratio that compares a borrower's total monthly debt payments to their gross monthly income, used by lenders to assess repayment capacity.
- Calculated as (Total Monthly Debts) / (Gross Monthly Income).
- Includes housing expenses (PITI) and other recurring debts.
- Lenders set maximum DTI limits (e.g., 36% for conventional loans).
Memory trick: DTI: Debts on Top, Income Below – a careful balance you must show.