Illinois real estate exam glossary
Debt-to-income ratio
A car loan balance is not its monthly payment. Two paychecks a month are not the same as a paycheck every two weeks. Most DTI mistakes happen before the division, when the wrong figures enter the calculation.
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The short answer
Debt-to-income ratio, or DTI, compares counted monthly debt payments with qualifying monthly income, generally eligible gross income for wage earners. Divide the monthly obligations by that income, then multiply by 100. A housing or front-end ratio uses the qualifying housing payment alone; total or back-end DTI also includes other counted debts. Use the applicable program's inputs and rules, not a universal approval percentage.
PSI places debt ratios in National IV.A.2, the general underwriting process. The whole Financing area has 10 of 100 scored national broker questions; that is not a quota for DTI. Reviewed October 26, 2026. These are original exam calculations. Stated income, debt inclusion and hypothetical limits are assumptions for the examples, not loan approvals.
Set up the ratio before calculating
- Use the requested numerator. For the housing ratio, use the qualifying housing expense. For total DTI, add other counted monthly obligations once. A loan balance, home price or loan-to-value percentage is not the monthly debt entry.
- Put income on a monthly basis. Ordinary salary examples use eligible gross income before personal payroll deductions. Qualifying income must be accepted under the actual rules; variable, self-employed, rental and other income need their own analysis. Do not treat every bank deposit or business receipt as approved income.
- Build the complete housing payment. In a typical owner-occupied example, include the stated principal and interest, property taxes, applicable insurance, association dues and other required qualifying charges. Include an annual cost on a monthly basis. Lack of an escrow account does not erase recurring taxes or insurance.
- Apply the debt rules supplied. Use required or program-calculated monthly payments. Student loans, short remaining terms, leases, support, other property and simultaneous financing can require different treatment. Do not infer that a missing reported payment or a short term means zero under every program.
- Divide, convert and label. Monthly obligations / qualifying monthly income x 100 gives a percentage. Identify whether the answer is housing or total DTI and follow the problem's rounding instruction. Calculate with full precision before rounding the final answer.
- Interpret separately. A calculated ratio, a particular program limit and a lender decision are three different things. For covered transactions, the applicable repayment-ability rule is broader than a single percentage. Qualification also does not prove a household's full budget is comfortable.
| Item or measure | Treatment in the example | Common mistake |
|---|---|---|
| Eligible annual fixed salary | Divide by 12 | Divide annual debt by monthly income |
| Eligible weekly fixed pay | Multiply by 52, then divide by 12 | Use four checks for every month |
| Eligible biweekly fixed pay | Multiply by 26, then divide by 12 | Treat it as 24 payments per year |
| Eligible twice-monthly fixed pay | Multiply by 2 | Treat it as biweekly |
| Qualifying housing expense | Housing ratio and total ratio | Count only principal and interest |
| Other included monthly debt | Add to total DTI once | Use the principal balance |
| Debt-to-income ratio | Monthly payment load / qualifying income | Confuse it with property leverage |
| Loan-to-value ratio | Loan / applicable value or price basis | Use it as an income measure |
| Personal affordability | Broader household budget | Assume approval covers every living expense |
The distinctions that matter
| Distinction | How it works | What to notice |
|---|---|---|
| Gross wages and qualifying income | Gross wages are before personal taxes and payroll deductions. Qualifying income is the amount the applicable underwriting method permits. A variable paycheck, business receipt or transfer between accounts is not automatically eligible income. | Use the income the problem establishes as qualifying. |
| Biweekly and semimonthly pay | Biweekly means every two weeks, normally 26 pay periods for this conversion. Semimonthly means twice a month, or 24 pay periods. Use the stated eligible fixed pay and actual applicable method. | The same check amount can produce different monthly income. |
| Housing ratio and total DTI | The housing numerator is one part of total obligations. Total DTI adds other counted debt payments; do not add a mortgage component again after including it in the complete housing payment. | Write the housing subtotal before adding other debts. |
| A dollar of debt and a percentage point | A payment change affects DTI relative to income. A change from 40% to 42% is two percentage points, not a two-dollar change and not necessarily a 2% relative increase. | Label the unit when comparing ratios. |
| General QM and a program's DTI rule | The former 43% General QM ceiling was removed. The current General QM category still has other conditions and requires consideration of DTI or residual income. Program and lender rules are separate. | Price-based conditions did not abolish repayment analysis. |
| A ratio and a household budget | DTI is a percentage using specified payments and income. It does not subtract every living cost or establish a complete personal spending plan. A lender can require more than an acceptable ratio. | Do not label a loan affordable or approved from DTI alone. |
Work through the facts
Build housing expense, then calculate both ratios
Monthly qualifying income is $8,000. The stated housing components are $1,500 principal and interest, $360 tax, $100 property insurance, $80 mortgage insurance and $160 association dues. Other counted debt payments total $600. All components are included under the problem's rules.
- Housing: $1,500 + $360 + $100 + $80 + $160 = $2,200.
- Housing ratio: $2,200 / $8,000 x 100 = 27.5%.
- Total obligations: $2,200 + $600 = $2,800; total DTI is $2,800 / $8,000 x 100 = 35%.
Answer: The housing ratio is 27.5%; total DTI is 35%. Neither answer by itself decides loan approval.
Annual salary belongs on a monthly basis
The problem establishes $96,000 of eligible fixed annual salary and $3,200 total monthly obligations.
- $96,000 / 12 = $8,000 monthly income.
- $3,200 / $8,000 x 100 = 40%.
Answer: Total DTI is 40%. Do not divide monthly obligations directly by annual income.
Weekly pay is not four checks per month
Use $1,500 of eligible fixed weekly pay and $2,600 counted monthly obligations.
- $1,500 x 52 = $78,000 annually.
- $78,000 / 12 = $6,500 monthly.
- $2,600 / $6,500 x 100 = 40%.
Answer: Total DTI is 40%, rather than a calculation based on a $6,000 monthly denominator.
The same check, two different schedules
Compare $3,000 of eligible fixed biweekly pay with $3,000 of eligible fixed semimonthly pay. Each example has $2,600 total monthly obligations. Round final ratios to two decimals.
- Biweekly: $3,000 x 26 / 12 = $6,500 monthly; DTI is 40.00%.
- Semimonthly: $3,000 x 2 = $6,000 monthly; DTI is 43.33% after final rounding.
- The pay schedule changes annual earnings even when each check has the same amount.
Answer: Biweekly gives 40.00%; semimonthly gives 43.33%. The difference is not a new underwriting rule.
A new vehicle payment changes the numerator
Prior counted obligations are $3,100. An additional $650 vehicle payment must be counted, and qualifying income remains $8,500. Round final DTI to two decimals.
- New obligations: $3,100 + $650 = $3,750.
- $3,750 / $8,500 x 100 = 44.117647...%.
Answer: Updated DTI is 44.12%. Disclose changes to the lender for the actual eligibility assessment; the calculation does not itself approve the loan.
Do not include income the facts exclude
The problem says $8,000 is accepted monthly qualifying income and a further $1,000 bonus may not be used for this file. Counted monthly obligations total $3,600.
- Use the stated qualifying denominator of $8,000.
- $3,600 / $8,000 x 100 = 45%.
- Using $9,000 would incorrectly give 40% on these facts.
Answer: DTI is 45%. This example does not mean all bonus income is ineligible.
Find a housing amount under a stated hypothetical cap
An exam problem specifies a 40% total-DTI limit, $7,500 qualifying monthly income and $500 in other counted debts. No separate housing-ratio cap applies.
- Maximum total monthly obligations under the stated cap: $7,500 x 0.40 = $3,000.
- Subtract $500 other debt: $3,000 - $500 = $2,500 for qualifying housing expense.
Answer: The math permits $2,500 of qualifying housing expense under those assumptions. It is not a universal limit, a maximum purchase price or a loan approval.
Less income can raise DTI without new debt
Counted monthly obligations remain $3,000. The accepted monthly qualifying income falls from $8,000 to $7,500.
- Original ratio: $3,000 / $8,000 x 100 = 37.5%.
- Updated ratio: $3,000 / $7,500 x 100 = 40%.
- The increase is 2.5 percentage points even though the monthly debt amount did not change.
Answer: Recalculate with the lower accepted income and have the lender assess the updated file under its actual requirements.
Mistakes to avoid
- Use the car balance because it is the largest number. Use the stated required or calculated monthly payment, with any actual program qualification.
- Every two-paycheck schedule is the same. Distinguish every two weeks from twice each month.
- A pay stub or bank deposit proves all income qualifies. Use documented eligible income and the method for its type.
- No escrow account means no tax or insurance in the calculation. Recurring required mortgage-related obligations remain relevant.
- The old 43% General QM ceiling approves or rejects every loan. Apply the current rule and actual program requirements.
- Round an intermediate monthly figure until the desired answer fits. Keep precision and round the final result as instructed.
- An acceptable ratio proves the household can afford the home. Separate underwriting from the full budget and personal circumstances.
Check your understanding
These are original teaching questions, not recalled or predicted PSI questions. Answer first, then explain why the other choices fail.
1. Which setup calculates total DTI?
- Counted monthly obligations / qualifying monthly income x 100
- Loan balance / property value x 100
- Monthly income / loan balance x 100
- Sale price / monthly mortgage interest
Show answer and explanation
Answer: A. Counted monthly obligations / qualifying monthly income x 100
Use consistent monthly periods and the debt and income inputs permitted by the problem and program.
2. Income is $8,000 and the complete qualifying housing payment is $2,200. What is the housing ratio?
- 40%
- 22%
- 27.5%
- 35%
Show answer and explanation
Answer: C. 27.5%
$2,200 / $8,000 x 100 = 27.5%. Do not add other debts to this housing-only numerator.
3. Housing is $2,200, other counted monthly debts are $600 and qualifying income is $8,000. What is total DTI?
- 32.5%
- 27.5%
- 35%
- 40%
Show answer and explanation
Answer: C. 35%
($2,200 + $600) / $8,000 x 100 = 35%.
4. Eligible fixed annual salary is $96,000. What monthly income does the simple conversion produce?
- $4,000
- $7,000
- $9,600
- $8,000
Show answer and explanation
Answer: D. $8,000
$96,000 / 12 = $8,000. Eligibility is supplied by the question, not established by division alone.
5. Eligible fixed weekly pay is $1,500. Which monthly conversion is correct here?
- $1,500 x 52 / 12 = $6,500
- $1,500 x 4 = $6,000
- $1,500 / 12 = $125
- $1,500 x 24 / 12 = $3,000
Show answer and explanation
Answer: A. $1,500 x 52 / 12 = $6,500
Use the stated weekly fixed-pay basis. Four checks per month omits part of a 52-week year.
6. Which statement correctly compares the stated fixed-pay schedules?
- Biweekly always means 24 checks
- The same check amount must give the same annual income
- Twice-monthly always means 26 checks
- Biweekly uses 26 pay periods for this conversion; twice-monthly uses 24
Show answer and explanation
Answer: D. Biweekly uses 26 pay periods for this conversion; twice-monthly uses 24
Every two weeks and twice each month describe different schedules. Use the applicable fixed-income method.
7. An included auto loan has $14,000 principal outstanding and a $420 required monthly payment. Which figure belongs in its monthly debt entry?
- $1,166.67 regardless of terms
- $14,000
- $420
- $14,420
Show answer and explanation
Answer: C. $420
Use the stated monthly payment, subject to any actual program treatment, rather than the principal balance.
8. The facts permit $8,000 monthly income and exclude another $1,000 bonus for this file. Debts are $3,600. What DTI follows?
- 45%
- 40%
- 37.5%
- 36%
Show answer and explanation
Answer: A. 45%
$3,600 / $8,000 x 100 = 45%. This is a fact-specific exclusion, not a rule banning all bonus income.
9. Obligations rise from $3,100 to $3,750 while income stays $8,500. What is the updated DTI, rounded to two decimals?
- 36.47%
- 43.33%
- 40.00%
- 44.12%
Show answer and explanation
Answer: D. 44.12%
$3,750 / $8,500 x 100 = 44.117647...%, rounded once at the end.
10. There is no lender escrow account for recurring property taxes. What is the sound approach to qualifying housing obligations?
- Ignore all taxes
- Use only the first mortgage principal
- Include the applicable recurring tax obligation under the relevant rules
- Subtract taxes from gross wages instead of assessing housing cost
Show answer and explanation
Answer: C. Include the applicable recurring tax obligation under the relevant rules
Absence of escrow does not remove the recurring mortgage-related expense from the repayment analysis.
11. Which statement accurately describes the former 43% General QM ceiling?
- It was removed; the current category retains other conditions and repayment-related analysis
- It applies to every cash purchase
- Its removal prohibited creditors from considering DTI
- It is a universal Illinois approval line
Show answer and explanation
Answer: A. It was removed; the current category retains other conditions and repayment-related analysis
The current rule is not a universal 43% test or a price-only approval rule. It still addresses verified factors and DTI or residual income.
12. Does a Fannie Mae reference to a 50% DU maximum establish approval for every loan at or below 50%?
- Yes, including every other investor
- Yes, regardless of findings
- Yes, if the agent calculates it
- No; the topic has exceptions and other eligibility requirements
Show answer and explanation
Answer: D. No; the topic has exceptions and other eligibility requirements
A general guide limit is not a universal approval line. Check the actual transaction, underwriting path and applicable requirements.
13. A problem specifies 40% total DTI, $7,500 monthly income, $500 other debt and no separate housing cap. What housing amount fits that ratio limit?
- $3,000
- $3,500
- $2,000
- $2,500
Show answer and explanation
Answer: D. $2,500
$7,500 x 0.40 = $3,000 total obligations; subtract $500 other debt for $2,500 housing. The cap is a stated hypothetical assumption.
14. A ratio rises from 40% to 42%. How large is the increase in percentage points?
- 42 percentage points
- 0.02 percentage point
- 2 percentage points
- 5 percentage points
Show answer and explanation
Answer: C. 2 percentage points
42 minus 40 equals 2 percentage points. A relative percentage increase is a different calculation.
Common questions
What is the DTI formula?
Counted monthly debt payments divided by qualifying monthly income, multiplied by 100. Standard wage examples ordinarily use eligible gross income before personal payroll deductions. The actual underwriting method determines eligible income and counted payments.
What is the difference between front-end and back-end DTI?
The front-end or housing ratio uses qualifying housing expense alone. The back-end or total ratio adds other counted debt payments. Use each housing component once rather than adding it again as another debt.
Does DTI use take-home pay?
Ordinary wage-based mortgage examples use eligible gross income, not net take-home pay. Do not confuse this with using all business receipts, every bank deposit or unverified variable earnings. Different income types require their own qualifying analysis.
How are weekly, biweekly and semimonthly pay converted?
For the stated eligible fixed pay, weekly x 52 / 12 and biweekly x 26 / 12 give monthly amounts. Semimonthly means twice monthly, so multiply the check by two. Do not approve fluctuating earnings from one check using these simple conversions.
Does housing expense include more than principal and interest?
It can include applicable taxes, property and mortgage insurance, dues and other required qualifying charges. Use the selected program's complete payment and avoid double counting. Ordinary individual utility spending is different from required association dues that may include common-area costs.
Do I use the debt balance or the payment?
Use the required or program-calculated monthly payment specified in the problem. A $14,000 balance and a $420 payment are different figures. Do not substitute the balance into the monthly numerator.
Does a student loan with no current payment always count as zero?
Do not assume so across programs. Determine the applicable method and documentation. Use the included payment the exam question provides; do not invent one universal balance percentage for every program or automatically ignore a deferred obligation.
Is 43% a universal mortgage DTI ceiling in October 2026?
No. The former General QM ceiling was removed. The current General QM definition has price-based and other conditions, including consideration of DTI or residual income. Loan programs and creditors can have separate requirements; the change did not abolish repayment analysis.
What Fannie Mae DTI limits should I recognize?
B3-6-02 states 36% for manual underwriting, potentially up to 45% with required credit and reserves, and a 50% DU maximum. It also lists transaction-specific exceptions. These figures are not every lender's rule or an approval guarantee; use the actual transaction and underwriting path.
Can DTI change after preapproval?
Yes. New debt, less qualifying income or revised housing charges can change the inputs. Tell the lender about changes. Recalculation, resubmission or re-underwriting depends on the actual facts and rules; do not rely on the earlier ratio as a guarantee.
What is the difference between DTI and LTV?
DTI compares counted monthly debt with qualifying income. Loan-to-value compares loan principal with an applicable property value or price basis. A low LTV does not automatically eliminate the need to assess repayment capacity.
Does an accepted DTI prove a home is affordable?
No. A full budget also considers living costs, repairs, savings and personal circumstances. The federal analysis can consider residual income, but a simple DTI worksheet is not the same as a complete household affordability assessment.
Are these official exam questions?
No. They are original teaching examples and questions. Use the stated assumptions to practise the calculation, then distinguish that calculation from a real creditor's verified underwriting decision.
What if qualifying income is zero?
A finite DTI cannot be calculated by dividing by zero. Do not report 0% merely because the denominator is missing or zero. Establish the proper inputs. Any alternative lawful underwriting method is a separate question, not permission to invent income or declare a loan approved.
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Official sources and scope
The CFPB definition explains the ratio, while current Regulation Z supplies the qualified federal repayment-ability context. Fannie Mae topics illustrate one investor's requirements. Topic dates differ: DTI rules are dated April 2, 2025, general income information October 7, 2026, and base income March 4, 2026. For real qualification, use the current applicable program and the lender's verified inputs.
- PSI June 24, 2026: debt ratios in underwriting
- CFPB: debt-to-income ratio definition
- Current Regulation Z 1026.43: repayment ability and General QM
- CFPB General QM final-rule explanation
- Fannie Mae B3-6-02: DTI limits, exceptions and changed files
- Fannie Mae B3-6-03: monthly housing expense
- Fannie Mae B3-3.1-01: general income information
- Fannie Mae B3-3.3-01: fixed and variable base income
This is exam preparation, not advice for a specific transaction. State law and the applicable facts control. Our editorial and corrections process explains how to report an issue.