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
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.
A VA loan is a mortgage guaranteed by the Department of Veterans Affairs available to eligible veterans, active-duty service members, and surviving spouses. It offers no down payment and no private mortgage insurance requirements.
A fixed-rate mortgage has an interest rate that remains constant for the entire term of the loan, resulting in equal monthly principal and interest payments throughout the life of the mortgage.
An adjustable-rate mortgage (ARM) has an interest rate that changes periodically based on market conditions, typically after an initial fixed-rate period. The rate adjustment is tied to a financial index plus a margin.
Frequently Asked Questions
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