Finance
What is the debt-to-income (DTI) ratio and how is it used?
AProperty value divided by loan balance; used to set interest rates
BMonthly debt payments divided by gross monthly income; used by lenders to assess repayment ability✓ Correct
CAnnual income divided by property tax; used to set tax rates
DNet worth divided by total debt; used for commercial loan approvals
Explanation
DTI ratio compares total monthly debt payments (including the proposed mortgage PITI) to gross monthly income. Conventional lenders typically prefer a DTI of 43% or less. A lower DTI indicates a borrower has more income relative to their debt obligations.
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