A borrower has been paying $500 monthly on a car loan with 8 months remaining. For back-end DTI calculations, how should this debt be treated?
Correct Answer
C) Exclude the payment since it has less than 10 months remaining
Under most lending guidelines, installment debts with 10 or fewer months remaining are typically excluded from DTI calculations because they will be paid off relatively soon and won't affect the borrower's long-term ability to make mortgage payments. This is a commonly misunderstood aspect of DTI calculations.
Why This Is the Correct Answer
Under most lending guidelines, installment debts with 10 or fewer months remaining are typically excluded from DTI calculations because they will be paid off relatively soon and won't affect the borrower's long-term ability to make mortgage payments. This is a commonly misunderstood aspect of DTI calculations.
More Mortgage Knowledge Questions
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Previous Question
A borrower has two mortgages on their property: a first mortgage of $200,000 and a second mortgage of $75,000. They want to refinance only the first mortgage to $210,000 for better terms, leaving the second mortgage in place. How is this transaction classified?
Next Question
A borrower is purchasing a home for $300,000 with an FHA loan in an area where the loan limit is $350,000. The seller agrees to pay 4% in closing costs. What is the maximum amount the seller can contribute?