Finance
A borrower's debt-to-income (DTI) ratio is calculated by dividing:
ATotal assets by total liabilities
BMonthly housing expenses plus monthly debt obligations by gross monthly income✓ Correct
CAnnual income by the property purchase price
DNet income by gross income
Explanation
DTI = Total Monthly Debt Payments ÷ Gross Monthly Income. Lenders evaluate two DTI ratios: front-end (housing expenses only — PITI) and back-end (all monthly debts including housing, car loans, credit cards, student loans, etc.
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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.
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.
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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