Finance
A homebuyer's debt-to-income (DTI) ratio compares their:
ADown payment to the property value
BMonthly debt payments to gross monthly income✓ Correct
CLoan amount to the purchase price
DNet income to the purchase price
Explanation
The DTI ratio is calculated by dividing total monthly debt payments (including the proposed mortgage payment) by gross monthly income. Lenders use DTI to assess whether a borrower can afford the loan.
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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.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
Pre-ApprovalA lender's conditional commitment to loan a specific amount to a borrower, based on verified income, credit, and assets.
Math Concepts
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