What Is the Front-End Debt-To-Income Ratio (DTI)?

The front-end debt-to-income ratio (DTI) is a variation of the DTI that calculates how much of a person's gross income is going toward housing costs. If a homeowner has a mortgage, the front-end DTI is typically 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 toward other debt types, such as credit cards or car loans. You may also hear these ratios referred to as "Housing 1" and "Housing 2," or "Basic" and "Broad," respectively.

Key Takeaways:

  • The front-end debt-to-income ratio (DTI), or the housing ratio, calculates how much of a person's gross income is spent on housing costs.
  • The front-end DTI is typically calculated as housing expenses (such as mortgage payments, mortgage insurance, etc.) divided by gross income.
  • A back-end DTI calculates the percentage of gross income spent on other debt types, such as credit cards or car loans.
  • Lenders usually prefer a front-end DTI of no more than 28%. 

Understanding the Front-End Debt-To-Income Ratio (DTI)

The DTI is also known as the mortgage-to-income ratio or the housing ratio. It may be contrasted with the back-end ratio.

Calculating Front-End Debt-To-Income Ratio (DTI)

Front-End DTI=(Housing ExpensesGross Monthly Income)100\text{Front-End DTI}=\left(\frac{\text{Housing Expenses}}{\text{Gross Monthly Income}}\right)*100Front-End DTI=(Gross Monthly IncomeHousing Expenses)100

To calculate the front-end DTI, add up your expected housing expenses, and divide it by how much you earn each month before taxes (your gross monthly income). Multiply the result by 100, and that is your front-end DTI ratio. For instance, if all your housing-related expenses total $1,000 and your monthly income is $3,000, your DTI is 33%.

What Is a Desirable Front-End Debt-To-Income Ratio (DTI)?

To qualify for a mortgage, the borrower often must have a front-end debt-to-income ratio of less than an indicated level. Paying bills on time, a stable income, and a good credit score won't necessarily qualify you for a mortgage loan. In the mortgage lending world, how far you are from financial ruin is measured by your DTI. Simply put, this is a comparison of your housing expenses and your monthly debt obligations versus how much you earn.

Higher ratios tend to increase the likelihood of default on a 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 DTIs below 31%.

Lenders usually prefer a front-end DTI of no more than 28%. In reality, depending on your credit score, savings, and down payment, lenders may accept higher ratios, although it depends on the type of mortgage loan. However, the back-end DTI is actually considered more important by many financial professionals for mortgage loan applications.

Special Considerations

When preparing for a mortgage application, the most obvious of strategies for lowering the front-end DTI is to pay off debt. However, most people don’t have the money to do so when they are in the process of getting a mortgage—most of their savings are going toward the down payment and closing costs. If you think you can afford the mortgage, but your DTI is over the limit, a co-signer might help.