Finance
A borrower's debt-to-income ratio (DTI) is calculated as:
AMonthly housing expenses divided by annual income
BTotal monthly debt payments divided by gross monthly income✓ Correct
CTotal outstanding debt divided by the property value
DMonthly net income divided by total loan amount
Explanation
DTI = Total monthly debt payments ÷ Gross monthly income. Lenders use DTI to assess a borrower's ability to manage monthly payments.
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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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