Ratios, Front End & Back End.

Ratios, Front End & Back End

Q. I hear mortgage bankers and brokers refer to front end and back end ratios.
      What are you folks talking about?

A. Front-end ratios refer to a borrower’s housing expense (mortgage
       payment, taxes and insurance) divided by the borrower’s gross income.
       Lenders like to see this number in the range of 28-30%.

A back-end ratio is one’s housing expense plus consumer debt divided,
again, by gross income. On the low side, some banks won’t allow this figure
to exceed 38% but, depending on the loan program, “A paper” lenders will
go as high as 45%. Sub-prime lenders will allow a Debt To Income ratio
(DTI) of 50% or even 55% in some instances.