Why debt ratios are important to lenders
Your debt-to-income ratio is a simple way of showing lenders what percentage of your income is available for a mortgage payment after taking all of your other debt obligations into consideration. You may see conventional loan debt limits referred to as the 28/36 qualifying ratio with FHA and VA loan ratios typically running higher at 29/41. Both numbers are percentages that are used to examine two unique aspects of your debt load.
The first number, or the front-end ratio, indicates the maximum percentage of your monthly gross income that the lender is willing to allow for housing expenses. This total includes payment on the loan principal and interestprivate mortgage insurance (PMI) , property taxes, and home insurance, collectively referred to as PITI, and homeowner’s association fees, if any.
The second number, or the back-end ratio, indicates the maximum percentage of your monthly gross income that the lender is willing to allow for housing expenses plus recurring debt. This total includes credit card payments, child support, car loans, and other obligations that extend beyond 6-10 months to repay.
