Debt to Income

Lenders look at an applicant's debt-to-income (DTI) ratio to determine if they can afford their mortgage payments as well as other debt obligations such as car loan payments and credit card payments. Lenders will have a maximum allowed DTI ratio, so it is a good idea to calculate your ratio on your own before you apply.

A DTI ratio uses your gross or pre-tax income for the calculation, and many debts are included to determine how much of a loan you can afford to repay. There are two types of DTI ratios: a front-end ratio and a back-end ratio, both of which are considered by your lender.

Your lender also considers both your front- and back-end ratios to qualify you for a mortgage. The front-end ratio compares your pre-tax monthly income to your new PITI (principal, interest, taxes, and insurance) payment to determine how much you can afford to pay each month.

The back-end ratio is the one that includes your other monthly obligations such as loan payments and child support. The maximum allowed ratio is higher for the back-end DTI.

What Lenders Want to See

Lenders typically want a front-end ratio that does not exceed 28%, and a back-end ratio of no more than 36%. If you have very good credit, you may be able to push these limits a bit higher. Guidelines tend to be looser with FHA and VA loans, which may cap the front-end ratio at 39% and the back-end ratio at 41%.

You cannot have a DTI ratio that exceeds 43% for your mortgage to be a Qualified Mortgage.