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Debt Ratios: Front-End & Back-End Ratios
October 8, 2008 by Mortgage Align · Leave a Comment
To calculate your debt-to-income ratio (DTI) lenders use what is called a front-end ratio to determine what payment a borrower can reasonably afford for a home loan, which is reflected as a percentage of your gross monthly income.
Front-End Ratio = (Monthly Housing Expense / Gross Monthly Income) x 100
- The front-end ratio for a FHA loan is 29%.
- For a conforming conventional loan, the front-end ratio is 33%.
The back-end ratio will reflect what part of borrower’s monthly income will go toward paying your new mortgage payment, plus all existing debts. Debts here will include the minimum payments per month for your car payments, credit cards, child support, alimony or any other secured / unsecured loans. The back-end is higher than the front-end.
Back-End Ratio = (Total Monthly Debt Expense / Gross Monthly Income) x 100
- For an FHA loan, the back-end ratio is 41%.
- For a conforming conventional loan, it is 45%.
