There are two DTI ratios: the front-end (housing) ratio includes only PITI (principal, interest, taxes, insurance) plus any HOA or PMI, while the back-end (total) ratio includes all monthly debt obligations. Conventional guidelines are typically 28% front-end and 36% back-end. FHA allows up to 31%/43%. VA primarily uses the back-end ratio at 41%.
A borrower earns $8,000/month gross. Proposed PITI is $2,000, car payment is $400, and student loans are $200. Front-end DTI = $2,000 / $8,000 = 25%. Back-end DTI = ($2,000 + $400 + $200) / $8,000 = 32.5%. Both are within conventional guidelines.
Always use GROSS (pre-tax) income, never net income. Memorize conventional thresholds: 28% front-end and 36% back-end. The front-end ratio includes only housing costs; the back-end includes all recurring debts. If either ratio exceeds the guideline, the borrower may not qualify.
Related Terms
Related Concepts
In the context of foreclosure, a deed transfers ownership of the foreclosed property to the new owner, typically the buyer at a foreclosure sale.
A trustee sale is a type of foreclosure where a trustee, appointed under a deed of trust, sells the property at auction to satisfy the debt.
Foreclosure is the legal process by which a lender takes possession of a property when a borrower fails to make mortgage payments. It allows the lender to sell the property to recover the outstanding debt.
A conventional loan is a mortgage that is not insured or guaranteed by a government agency such as the FHA, VA, or USDA. It is originated and funded by private lenders and may be conforming or non-conforming.
An FHA loan is a mortgage insured by the Federal Housing Administration that allows lower down payments and credit scores than conventional loans. It is designed to help first-time homebuyers and borrowers with limited resources.
Frequently Asked Questions
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