Debt-to-Income Ratio

Your lender will review your debt ratios when you apply for a mortgage. These are also known as your DTI (debt-to-income ratios). To ensure that you have sufficient income to afford a mortgage, lenders calculate DTI. Your lender will review two ratios of debt to income:

Housing Ratio, or "Front End Ratio"

Your monthly mortgage payment and other costs associated with homeownership will be added by your lender. Other homeownership costs include homeowner association fees, property taxes and homeowner's insurance. These expenses are usually included in your monthly mortgage payments. Your lender will divide your expected mortgage payment and homeownership expenses by your gross monthly income to calculate your housing ratio.

Total Debt Ratio (or "Back-End Rate")

A lender will calculate your housing ratio and also analyze your total debt ratio. Your other installment and revolving loans will also be evaluated and added up. Your credit report will show both revolving and installment debts. These are expenses such as minimum monthly credit card payments, student loan payments and alimony. Your lender will add up all your monthly installment and revolving debts in addition to your estimated monthly mortgage payment and housing expenses and divide that number by your monthly gross income.

Limits on Debt-to Income

It is best to keep your front-end and rear-end debt ratios below 28 percent. It is possible to obtain a mortgage with a higher DTI. Conventional loans typically have a 28/36 ratio. In some cases, however, the back-end DTI can go as high as 50%.