A borrower earns $9,000 gross per month. The proposed housing payment is $2,500, the car payment is $500, and the required minimum revolving payment is $250. Approximately what is the back-end DTI?
Correct Answer
C) 36.1%
Why this is correct: The back-end DTI ratio is total monthly debt obligations divided by gross monthly income. Obligations include: housing payment ($2,500) + car payment ($500) + minimum revolving payment ($250) = $3,250. Gross income = $9,000. DTI = $3,250 / $9,000 ≈ 0.3611, or 36.1%. Why the other choices are wrong: "27.8%" is wrong; this approximates the front-end ratio (housing payment only: $2,500 / $9,000 ≈ 27.8%). "30.6%" is incorrect, possibly from omitting one debt or miscalculating. "41.7%" is wrong; it might result from adding an extra debt or an arithmetic error. Exam tip: When calculating DTI, ensure you include all recurring monthly debts listed in the question. Even small minimum payments must be added.
Why This Is the Correct Answer
Why this is correct: The back-end DTI ratio is total monthly debt obligations divided by gross monthly income. Obligations include: housing payment ($2,500) + car payment ($500) + minimum revolving payment ($250) = $3,250. Gross income = $9,000. DTI = $3,250 / $9,000 ≈ 0.3611, or 36.1%. Why the other choices are wrong: "27.8%" is wrong; this approximates the front-end ratio (housing payment only: $2,500 / $9,000 ≈ 27.8%). "30.6%" is incorrect, possibly from omitting one debt or miscalculating. "41.7%" is wrong; it might result from adding an extra debt or an arithmetic error. Exam tip: When calculating DTI, ensure you include all recurring monthly debts listed in the question. Even small minimum payments must be added.
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