Debt-to-income ratio (DTI) is calculated by dividing:
Correct Answer
A) Total monthly debt payments by gross monthly income
The debt-to-income ratio (DTI) is calculated by dividing a borrower's total monthly debt payments by their gross monthly income. Lenders use DTI to assess a borrower's ability to manage monthly payments. Most conventional loan programs require a DTI of 43% or lower, though some programs allow higher ratios with compensating factors.
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Closing costs are the fees and expenses paid by the buyer and seller at the closing of a real estate transaction, beyond the purchase price. They typically range from 2-5% of the purchase price.
A conventional loan is a mortgage that is not insured or guaranteed by a government agency such as the FHA, VA, or USDA. It is originated and funded by private lenders and may be conforming or non-conforming.
The debt-to-income ratio (DTI) compares a borrower's monthly debt obligations to their gross monthly income. It is used by lenders to determine how much mortgage a borrower can afford.
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