Front-end vs back-end DTI.
In plain English
Debt-to-income ratio, or DTI, compares your monthly debt payments to your monthly income, and lenders look at two versions. The front-end ratio counts only housing costs, principal, interest, taxes, and insurance, against your gross income. The back-end ratio counts all recurring debt: the housing payment plus car loans, student loans, credit card minimums, and more. Lenders lean most on the back-end number, and many conventional and qualified mortgages look for it to stay at or below the low-to-mid 40s as a percentage. Lower ratios generally mean easier approval and more room in your budget.
01Why it matters
These two ratios largely decide how much home a lender will approve, so knowing how each is figured helps you see your borrowing limit before you shop.
02The math, step by step
You earn 6,000 dollars a month. A 1,500 dollar housing payment is a 25 percent front-end ratio. Add 700 dollars of other debt and your total 2,200 dollars is a 37 percent back-end ratio.
03What this is NOT
DTI is NOT one figure. Front-end counts only housing; back-end counts all your debts, and lenders usually weigh the back-end ratio most heavily.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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