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Debt to Income Ratios

Home Mortgage QualificationThere are two ratios that a lender will be interested in; 1) your housing ratio, also known as your “front end ratio,” and 2) your debt-to-income ratio, also known as your “back end ratio.”

The housing ratio is your gross monthly income (your income before taxes are deducted) divided by your total housing payment. Your total housing payment includes principal, interest, taxes and insurance.

Your debt-to-income ratio is calculated the same as the housing ratio, except all revolving and installment debt is added to the housing payment and divided by your gross monthly income.  Revolving and instalment debt can include credit cards, student loans, car loans, personal loans, etc.

Ideally, these ratios should be less than 35% for the housing ratio, and less than 45% fpr the debt-to-income ratio, although today many loans are approved with a borrower having a ratio as high as 55%.