What metric helps lenders evaluate the relationship between a borrower's total monthly debt payments and their income?

The debt-to-income ratio is a crucial metric that lenders use to assess a borrower's ability to manage monthly debt payments relative to their income. This ratio provides insight into the borrower’s overall financial health and stability by comparing their total recurring monthly debt obligations—such as mortgage payments, car loans, credit card payments, and other debts—to their gross monthly income.

A lower debt-to-income ratio indicates that a borrower has a manageable level of debt compared to their income, which often makes them a less risky candidate for lending. In contrast, a higher ratio can signal potential financial strain, causing lenders to evaluate the application more cautiously or to adjust loan terms.

This metric is a vital part of lenders' underwriting processes because it helps them determine whether a borrower can afford the loan they are applying for, ensuring responsible lending practices. Other options, such as credit score, down payment, and interest rate, are also important factors in the mortgage approval process but do not specifically measure the relationship between total monthly debt payments and income.