Debt to income ratio, or DTI, is actually two numbers: a front-end ratio and a back-end ratio. Both ratios are used by mortgage lenders to help determine whether you’ll be able to pay them back each month.
The front-end ratio, also called the housing expense ratio, is the percentage of your gross (or pretax) income that will go to paying off your mortgage payments each month.
While conservative lenders will look to make sure their borrowers don’t pay more than 28 percent of their monthly gross income toward their mortgage, other lenders might be willing to push this threshold up to 30 percent and beyond.
The back-end ratio, also called the debt-to-income ratio, is the percentage of your gross monthly income that will go toward paying off all of your debt obligations. This includes your mortgage, credit card payments, student loan payments, car payments, child support, etc.
Conservative lenders likely will want no more than 36 percent of your monthly gross income going toward your debt obligations, while others may be willing to push this up to 40 percent or more.
To learn more about DTI visit AOL real estate.
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