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Debt to Income Ratio (DTI)

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Debt to Income Ratio (DTI)

There are two debt to income ratios that play a role in determining whether a person qualifies for a particular loan amount: "Front End" and "Back End". Both compare expenses to gross monthly income.

The Front End Ratio compares your monthly mortgage payment to your monthly gross income. For example, if your mortgage payment will be $1,000 per month and you earn $4,000 per month, then your front end ratio is $1000 divided by $4000 or 25%.

The Back End Ratio compares the total of your mortgage payment and your monthly non-housing debt to your gross monthly income. For example, if your mortgage payment will be $1,000 per month and you currently pay $200 for an auto loan, $300 for student debt, and $100 for credit cards, then your back end ratio is $1,600 divided by $4,000 or 40%.

When "debt to income" or DTI is used by itself (i.e., without the terms "back end" or "front end"), it generally refers to the back end debt to income ratio.

In the past, the general guideline for maximum ratios was 28% and 36% respectively. Today, the maximum debt to income ratio allowed is different from loan to loan.

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