Know Your Homebuying Ratios

During your homebuying journey, it’s important to understand the various ratios lenders use and how they impact the home loan process. Lenders use two ratios to help determine the loan amount you are qualified to receive: the housing expense ratio and the debt-to-income (DTI) ratio.

These ratios are shown in percentages and determine whether you are financially ready and able to qualify for a mortgage. They represent the percentage of your income that goes toward paying your monthly debts and housing expenses. Each type of loan has its own maximum allowable ratio.

Ratio examples

The Housing Expense Ratio, also known as your front-end ratio, is the percentage of your gross monthly income devoted to housing expenses.

 

Type of Loan	Percentage of Gross Income
FHA	Up to 31%
VA	No set limit (varies based on overall financial picture)
Conventional	Up to 28%

The Debt-to-Income (DTI) Ratio, known as your back-end ratio, indicates what portion of your monthly income goes toward paying debts (credit card bills, car loans, etc.).

Type of Loan	Percentage of Gross Income
FHA	Up to 43%
VA	Typically up to 41%
Conventional	Up to 36%

Lenders calculate DTI and housing expense ratios at the monthly level using the borrower’s gross/pre-tax income.

 

GOOD TO KNOW:

As a general rule, you want to spend no more than 30% of your monthly gross income on housing.

The front-end ratio is calculated from housing-related expenses only (monthly rent, utilities, etc.). The back-end ratio calculates all recurring monthly debts (monthly mortgage payment, credit cards, car loans, etc.).

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