2.Front/Back End Ratios

Front

What is the front-end ratio in mortgage lending?

Back

The front-end ratio is the percentage of a borrower's gross monthly income that goes towards housing costs, including mortgage payments, property taxes, and homeowner's insurance. It is typically recommended to be less than 28%.

Front

What is the back-end ratio in mortgage lending?

Back

The back-end ratio is the percentage of a borrower's gross monthly income that goes towards all monthly debt payments, including housing costs, credit card bills, car loans, and other debts. It is typically recommended to be less than 36%.

Front

How do you calculate the front-end ratio?

Back

To calculate the front-end ratio, divide the total monthly housing costs (mortgage payment + property taxes + homeowner's insurance) by the gross monthly income, then multiply by 100 to get a percentage.

Front

How do you calculate the back-end ratio?

Back

To calculate the back-end ratio, divide the total monthly debt payments (housing costs + other debts) by the gross monthly income, then multiply by 100 to get a percentage.

Front

What is considered a good front-end ratio for mortgage approval?

Back

A good front-end ratio for mortgage approval is typically less than 28%.

Front

What is considered a good back-end ratio for mortgage approval?

Back

A good back-end ratio for mortgage approval is typically less than 36%.

Front

If a borrower has a gross monthly income of $5,000 and their monthly housing costs are $1,200, what is their front-end ratio?

Back

Front-end ratio = ($1,200 / $5,000) * 100 = 24%.

Front

If a borrower has a gross monthly income of $5,000 and their total monthly debt payments are $2,000, what is their back-end ratio?

Back

Back-end ratio = ($2,000 / $5,000) * 100 = 40%.

Front

What are the components included in the front-end ratio?

Back

The components included in the front-end ratio are the monthly mortgage payment, property taxes, and homeowner's insurance.

Front

What are the components included in the back-end ratio?

Back

The components included in the back-end ratio are the monthly mortgage payment, property taxes, homeowner's insurance, credit card payments, car loans, and any other monthly debt obligations.