Debt To Income Ratios Explained

Debt To Income Ratios Explained

Debt-to-income Ratios

The debt-to-income ratio is the way mortgage lenders decide how much money you can afford to borrow. It is the percentage of your monthly gross income used to pay your monthly debts (not monthly living expenses). Two calculations are involved, a front ratio and a back ratio, written in ratio form, i.e., 33/38. I know that sounds technical! But let's get further into it below.

The first number indicates the percentage of your monthly gross income used to pay housing costs, such as principal, interest, taxes, insurance, mortgage insurance and homeowners’ association dues. The second number indicates your monthly consumer debt, such as car payments, credit card debt, installment loans, etc.

So a debt-to-income ratio of 33/38 means that 33 percent of your monthly gross income is used to pay your monthly housing costs, and 5 percent of your monthly gross income is used to pay your consumer debt—so your housing costs plus your consumer debt equals 38 percent.

33/38 is a common guideline for debt-to-income ratios. Depending on your down payment and credit score, the guidelines can be looser or tighter, depending on your lender, and guidelines also vary according to program. The FHA, for instance, requires no better than a 29/41 qualifying ratio, while the VA guidelines require no front ratio but a back ratio of 41. I hope this helps when you are ready to buy your new home. 

Getting pre-approved helps you find and get your dream home faster, easier, and with less stress.

I'm happy to help with any questions you may have to start you on your way to finding your new home. :-)


Mary Ganci Headshot
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Phone: 915-603-7367
Dated: February 7th 2020
Views: 201
About Mary: Why El Paso? Did you know, the weather is year round and the sun shines 302 days a year? That UTEP i...

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