Front-End Debt-to-Income Ratio - DTI
What is '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%.