Which method determines the actual maximum housing payment given both housing ratio and total DTI considerations?

Which method determines the actual maximum housing payment given both housing ratio and total DTI considerations?

• A. The lesser of the housing-cap and the DTI-cap minus debt
• B. The housing-cap alone
• C. The DTI-cap minus debt alone
• D. The greater of the two

Answer: (A)

In underwriting, the maximum housing payment must satisfy two limits at once: the housing ratio cap and the total DTI cap. Because both constraints apply, you take the smaller of the two possible limits to stay within every rule. The housing-cap is found by multiplying gross monthly income by the housing ratio (for example, 28% becomes income × 0.28). The amount allowed by the DTI constraint is the DTI cap multiplied by income minus any other monthly debt obligations (DTI cap × income − existing debts). The actual maximum housing payment is the lesser of those two values. If you used only the housing-cap, you might exceed what the total DTI allows once other debts are included. If you used only the DTI-minus-debt figure, you might ignore the affordability limit set by the housing ratio. The correct method is the smaller amount, ensuring both limits are satisfied. For example, with $5,000 monthly income, a 28% housing ratio gives a $1,400 housing-cap, and with a 36% DTI cap minus $600 in other debts you’d have $1,200 available for housing; the max housing payment would be $1,200.

In underwriting, the maximum housing payment must satisfy two limits at once: the housing ratio cap and the total DTI cap. Because both constraints apply, you take the smaller of the two possible limits to stay within every rule. The housing-cap is found by multiplying gross monthly income by the housing ratio (for example, 28% becomes income × 0.28). The amount allowed by the DTI constraint is the DTI cap multiplied by income minus any other monthly debt obligations (DTI cap × income − existing debts). The actual maximum housing payment is the lesser of those two values.

If you used only the housing-cap, you might exceed what the total DTI allows once other debts are included. If you used only the DTI-minus-debt figure, you might ignore the affordability limit set by the housing ratio. The correct method is the smaller amount, ensuring both limits are satisfied. For example, with $5,000 monthly income, a 28% housing ratio gives a $1,400 housing-cap, and with a 36% DTI cap minus $600 in other debts you’d have $1,200 available for housing; the max housing payment would be $1,200.