Define Debt-to-Income Ratio (DTI) and how lenders typically treat front-end vs back-end DTI.

• A. DTI = total monthly debt payments divided by gross monthly income; front-end covers housing costs, back-end includes all debts.
• B. DTI = gross monthly income divided by total monthly debt payments
• C. DTI = housing costs divided by gross income
• D. DTI is a ratio of debt service payments to annual income

Answer: (A)

Debt-to-Income (DTI) shows how much of your gross monthly income goes toward debt payments each month, helping lenders gauge your ability to handle new obligations. The correct approach defines DTI as the total monthly debt payments divided by gross monthly income, and it distinguishes front-end vs back-end: the front-end ratio looks at housing costs (PITI), while the back-end ratio includes all monthly debts. This separation matters because a borrower can have a low housing-only burden but a high overall debt load, or vice versa, and lenders often apply different thresholds to each.

The other descriptions don’t fit: one inverts the ratio by dividing income by debt payments; another uses housing costs over gross income (that’s the front-end only, not total debt); and another uses annual income instead of monthly.