DEFINITION of 'Front-End Debt-to-Income Ratio - DTI '

A variation of the debt-to-income ratio (DTI) that calculates how much of a person's gross income is going towards housing costs. If a homeowner has a mortgage, the front-end DTI ratio is usually calculated as housing expenses (such as mortgage payments, mortgage insurance, etc.) divided by gross income. In contrast, a back-end DTI calculates the percentage of gross income going towards other types of debt like credit card or car loans.

BREAKING DOWN 'Front-End Debt-to-Income Ratio - DTI '

To qualify for a mortgage, the borrower often has to have a front-end DTI ratio less than an indicated level. Higher ratios tend to increase the likelihood of default on the mortgage. For example, in 2009 many homeowners had front-end DTIs that were significantly higher than average, and consequently mortgage defaults began to rise. In 2009 the government introduced loan modification programs in an attempt to get front-end DTI's below 31%.

RELATED TERMS
  1. Front-End Ratio

    A ratio that indicates what portion of an individual's income ...
  2. Back-End Ratio

    A ratio that indicates what portion of a person's monthly income ...
  3. Qualifying Ratios

    A set of ratios that are used by lenders to approve borrowers ...
  4. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  5. Mortgage Rate

    The rate of interest charged on a mortgage. Mortgage rates are ...
  6. Second Mortgage

    A type of subordinate mortgage made while an original mortgage ...
Related Articles
  1. Personal Finance

    Tips to Afford a Mortgage with Student Loan Debt

    Use these guidelines to decide whether you can afford a mortgage along with student loan debt.
  2. Personal Finance

    Too Much Debt For a Mortgage?

    Just because a lender is willing to offer you a loan doesn't mean you should take it.
  3. Personal Finance

    Jumbo Vs. Conventional Mortgages: How They Differ

    Size does matter – and it affects everything from down payments to interest deductions.
  4. Personal Finance

    Conventional Mortgage

    A conventional mortgage is any type of homebuyer's load that is not offered or secured by a government entity but rather available through a private lender.
  5. Personal Finance

    5 Reasons To Save For A Big Mortgage Down Payment

    You may be anxious to buy a home, but taking time to save a large down payment has numerous advantages.
  6. Personal Finance

    Understanding the Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  7. Retirement

    How Does A Reverse Mortgage Work?

    A homeowner who’s at least 62 years old can use a reverse mortgage to tap into her home’s equity for money. The house serves as the loan’s collateral. The loan is repaid when the homeowner dies, ...
  8. Personal Finance

    7 Mortgage Trends To Expect In 2011

    How will the year compare to 2010? What's likely to be different?
  9. Personal Finance

    Ways to Be Mortgage-Free Faster

    Getting rid of this debt faster has bigger benefits than you might think.
RELATED FAQS
  1. What is the difference between debt to income and debt to assets?

    Understand the differences between the debt-to-income ratio and the debt to assets ratio as they apply to personal and corporate ... Read Answer >>
  2. What's considered to be a good debt-to-income (DTI) ratio?

    Your debt-to-income ratio helps lenders determine your credit worthiness. Find out how to calculate your score and whether ... Read Answer >>
  3. What counts as "debts" and "income" when calculating my debt-to-income (DTI) ratio?

    It's important to know your debt-to-income ratio because it's the figure lenders use to measure your ability to repay the ... Read Answer >>
  4. What is the debt ratio for an FHA loan?

    Borrowing through the Federal Housing Administration requires individuals to provide proof of income as well as information ... Read Answer >>
Hot Definitions
  1. Treynor Ratio

    A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless ...
  2. Buyback

    The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies ...
  3. Tax Refund

    A tax refund is a refund on taxes paid to an individual or household when the actual tax liability is less than the amount ...
  4. Gross Domestic Product - GDP

    The monetary value of all the finished goods and services produced within a country's borders in a specific time period, ...
  5. Inflation

    The rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of ...
  6. Merchandising

    Merchandising is any act of promoting goods or services for retail sale, including marketing strategies, display design and ...
Trading Center