The ratio obtained when the PITI payment is divided by gross monthly income is known as the:

The ratio obtained when the PITI payment is divided by gross monthly income is known as the:

• A. Annual debt payment ratio
• B. Back ratio
• C. Gross monthly interest only payment
• D. Housing debt-to-income ratio

Answer: (D)

This question tests understanding of how lenders measure housing affordability. PITI, the monthly payment for principal, interest, taxes, and insurance, represents the costs directly tied to housing. When you divide that housing payment by gross monthly income, you get the housing debt-to-income ratio—the portion of income that goes toward housing expenses each month. This is commonly referred to as the front-end ratio or housing expense ratio. The back-end ratio, by contrast, uses all recurring debt payments (PITI plus other debts) divided by gross income, so that would be a different measure. The other options don’t describe a ratio based on the housing payment relative to income. So the correct term for this ratio is the housing debt-to-income ratio.

This question tests understanding of how lenders measure housing affordability. PITI, the monthly payment for principal, interest, taxes, and insurance, represents the costs directly tied to housing. When you divide that housing payment by gross monthly income, you get the housing debt-to-income ratio—the portion of income that goes toward housing expenses each month. This is commonly referred to as the front-end ratio or housing expense ratio.

The back-end ratio, by contrast, uses all recurring debt payments (PITI plus other debts) divided by gross income, so that would be a different measure. The other options don’t describe a ratio based on the housing payment relative to income. So the correct term for this ratio is the housing debt-to-income ratio.