Debt To Income

The debt-to-income ratio is, simply, the way

that mortgage lenders decide how much

money you can comfortably afford to borrow.

is the percentage of your monthly gross income

(before taxes) that is used to pay your monthly debts

(not your monthly living expenses). Two calculations

are involved, a front ratio and a back ratio, written in

ratio form, i.e., 33/38.

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. Other living expenses are not considered

debt.

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, 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.