Finance
A borrower's debt-to-income (DTI) ratio is calculated as:
ATotal assets divided by total liabilities
BMonthly debt obligations divided by gross monthly income✓ Correct
CAnnual income divided by the loan amount
DNet income divided by monthly housing payment
Explanation
DTI ratio = total monthly debt payments ÷ gross monthly income. Lenders use this ratio to assess a borrower's ability to manage monthly payments and repay debts.
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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.
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.
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.
Math Concepts
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