Finance
A borrower's debt-to-income (DTI) ratio is calculated by dividing:
AAnnual income by total assets
BMonthly debt obligations by gross monthly income✓ Correct
CTotal loan amount by appraised value
DMonthly savings by monthly income
Explanation
DTI = Monthly Debt Payments ÷ Gross Monthly Income × 100. For example, $2,000 in monthly debts on a $5,000 gross monthly income = 40% DTI.
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Key Terms to Know
Debt-to-Income Ratio (DTI)
A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Pre-ApprovalA lender's conditional commitment to loan a specific amount to a borrower, based on verified income, credit, and assets.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Math Concepts
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