A borrower's debt-to-income ratio is calculated by dividing what?

The debt-to-income (DTI) ratio is a critical financial metric used by lenders to assess a borrower's ability to manage monthly payments and repay debts. This ratio is specifically calculated by dividing the total monthly debts by the total monthly income.

By focusing on total monthly debts, which typically include obligations such as mortgage payments, credit card payments, auto loans, and any other ongoing financial commitments, and comparing them to the borrower's total monthly income, lenders can determine what percentage of the borrower’s income is consumed by debt. This helps in understanding the borrower's financial health and their ability to afford additional loans.

The choice that states total monthly income by total monthly debts would not yield the proper DTI ratio, as it would reverse the necessary calculation and provide a misleading figure. Similarly, calculating based on total assets versus liabilities or on specific housing payments to yearly income would not provide the standardized view of monthly debt obligations that lenders require. Understanding how to accurately calculate the DTI ratio is crucial for both borrowers and lenders in the mortgage process.