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Front-end debt-to-income ratio is a measure of how much of monthly income goes toward housing costs. That includes **mortgage payments, property taxes, homeowners insurance premiums, and homeowners association fees**, if applicable.

Front-end ratio: Also called the housing ratio, this shows what percentage of your income would go toward housing expenses. This includes your **monthly mortgage payment, property taxes, homeowners insurance and homeowners association fees**, if applicable.

One type of DTI ratio is the front-end ratio. In addition to the general mortgage payment, it also **considers other associated costs**, such as homeowners association (HOA) dues, if applicable.

The following payments should not be included: **Monthly utilities**, like water, garbage, electricity or gas bills. Car Insurance expenses. Cable bills.

Your DTI ratio compares how much you owe with how much you earn in a given month. It typically includes **monthly debt payments such as rent, mortgage, credit cards, car payments, and other debt**. Include any pre-tax and non-taxable income that you want considered in the results.

Many recurring monthly bills should not be included in calculating your debt-to-income ratio because they represent fees for services and not accrued debt. These typically include routine household expenses such as: Monthly **utilities**, including garbage, electricity, gas and water services.

*Remember your **current rent payment or mortgage is not actually included in your DTI calculated by the lender**. ... Using your current rent or mortgage payment amount in your own calculations can help you know if your new monthly mortgage expense would potentially be the same, higher, or lower.

While **car insurance is not included in the debt-to-income ratio**, your lender will look at all your monthly living expenses to see if you can afford the added burden of a monthly mortgage payment.

The back-end ratio is calculated by **adding together all of a borrower's monthly debt payments and dividing the sum by the borrower's monthly income**.

With the FHA, you're generally required to have a DTI of 43% or less, though it varies based on credit score. To be more specific, your front-end DTI (monthly mortgage payments only) should be **31% or less**, and your back-end DTI (all monthly debt payments) should be 43% or less.

The front-end ratio does not include **other housing expenses** like utility bills or cable TV services. If a borrower expects to pay $1,100 in monthly principal and interest, plus $300 in property taxes and homeowners insurance payments, the PITI costs would be $1,400 per month.

Net Income. For lending purposes, the debt-to-income calculation is **always based on gross income**. Gross income is a before-tax calculation. As we all know, we do get taxed, so we don't get to keep all of our gross income (in most cases).

**FHA** loans only require a 3.5% down payment. High DTI. If you have a high debt-to-income (DTI) ratio, FHA provides more flexibility and typically lets you go up to a 55% ratio (meaning your debts as a percentage of your income can be as much as 55%).

A good DTI ratio to get approved for a mortgage is **under 36%**. ... Your debt-to-income ratio, or DTI, is the percentage of your monthly gross income that goes toward paying your debts, and it helps lenders decide how much you can borrow.

Limitations of the Back-End Ratio

The back-end ratio does **not recognize the different types of debt and service costs of debt**. For example, although credit cards yield a higher interest rate than student loans, they are added together in the numerator within the ratio.

A Critical Number For Homebuyers

One way to decide how much of your income should go toward your mortgage is to use the 28/36 rule. According to this rule, your **mortgage payment shouldn't be more than 28% of your monthly pre-tax income and 36% of your total debt**. This is also known as the debt-to-income (DTI) ratio.

Borrower Limitations

The standard maximum front end DTI for conventional loans is **28 percent**. When you apply for a new loan with a standard 20-percent down payment, the lender generally approves you for a request that does not exceed this limit.

1. In 2020, the average American's debt payments made up **8.69%** of their income. To put this into perspective, the average American allocates almost 9% of their monthly income to debt payments, which is a drop from 9.69% in Q2 2019.

If you make a down payment of **less than 20%**, you'll likely also have to pay for private mortgage insurance (PMI) which would be included in your DTI as well. Other monthly housing expenses, like utilities, are not included.

As a general guideline, **43%** is the highest DTI ratio a borrower can have and still get qualified for a mortgage. Ideally, lenders prefer a debt-to-income ratio lower than 36%, with no more than 28% of that debt going towards servicing a mortgage or rent payment.

- Increase the amount you pay monthly toward your debt. Extra payments can help lower your overall debt more quickly.
- Avoid taking on more debt. ...
- Postpone large purchases so you're using less credit. ...
- Recalculate your debt-to-income ratio monthly to see if you're making progress.

Expressed as a percentage, a debt-to-income ratio is calculated by dividing total recurring monthly debt by monthly gross income. Lenders prefer to see a debt-to-income ratio **smaller than 36%**, with no more than 28% of that debt going towards servicing your mortgage.

In general, many investors look for a company to have a debt ratio **between 0.3 and 0.6**. From a pure risk perspective, debt ratios of 0.4 or lower are considered better, while a debt ratio of 0.6 or higher makes it more difficult to borrow money.

Add the company's short and long-term debt together to get the total debt. To find the net debt, add the amount of cash available in bank accounts and any cash equivalents that can be liquidated for cash. Then **subtract the cash portion from the total debts**.

The front-end debt-to-income ratio (DTI), or the housing ratio, **calculates how much of a person's gross income is spent on housing costs**. The front-end DTI is typically calculated as housing expenses (such as mortgage payments, mortgage insurance, etc.) ... Lenders usually prefer a front-end DTI of no more than 28%.