Which formula correctly represents the Debt-to-Income (DTI) ratio used by lenders to qualify borrowers?
Correct Answer
A) Total monthly debt payments divided by gross monthly income
DTI is calculated by dividing total monthly debt payments by gross monthly income. Lenders use this ratio to assess a borrower's ability to manage monthly payments and repay debts. A lower DTI indicates a stronger financial position; most conventional lenders prefer a DTI at or below 43%.
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A VA loan is a mortgage guaranteed by the Department of Veterans Affairs available to eligible veterans, active-duty service members, and surviving spouses. It offers no down payment and no private mortgage insurance requirements.
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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.
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