# Front-End Debt-to-Income (DTI) Ratio: Definition and Calculation

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

Your front-end debt-to-income ratio (DTI) represents the percentage of your monthly [gross income](https://www.investopedia.com/terms/g/grossincome.asp) that goes to paying your total monthly housing expenses. The front-end DTI ratio helps [mortgage lenders](https://www.investopedia.com/mortgage/mortgage-guide/mortgage-lenders/) determine the affordability of borrowers looking to buy a home.

Your total monthly housing expenses include the mortgage payment, property taxes, [mortgage insurance](https://www.investopedia.com/ask/answers/071614/whats-difference-between-private-mortgage-insurance-pmi-and-mortgage-insurance-premium-mip.asp), and [homeowners insurance](https://www.investopedia.com/terms/h/homeowners-insurance.asp). To calculate your front-end DTI ratio, total the expected monthly housing costs and divide it by your monthly gross income.

The front-end DTI ratio can help determine how much you can afford to borrow when buying a home. However, mortgage lenders use other metrics in the loan approval process, including your credit score and [DTI ratio](https://www.investopedia.com/terms/d/dti.asp), which compares your income to all of your monthly debt and housing expenses.

### Key Takeaways:

*   The front-end debt-to-income (DTI) ratio represents the percentage of your monthly gross income that goes to your total housing expenses.
*   Your total housing expenses include the [mortgage](https://www.investopedia.com/mortgage-rates-5094943) payment, mortgage insurance, homeowners insurance, and property taxes.
*   Calculate your front-end DTI ratio by dividing the total expected monthly housing costs by your monthly gross income.
*   Your back-end DTI calculates the percentage of gross income spent on all debt, including housing, credit cards, and loans.
*   Lenders usually prefer a front-end DTI of no more than 28% and a back-end DTI of 33% to 36%.

## How the Front-End Debt-to-Income (DTI) Ratio Works

The front-end debt-to-income (DTI) ratio compares your [total housing or mortgage expenses](https://www.investopedia.com/terms/t/total_housing_expense.asp) to your monthly gross income. The formula for calculating the front-end DTI ratio is:

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

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](https://www.investopedia.com/ask/answers/070915/what-difference-between-taxable-income-and-gross-income.asp)). Multiply the result by 100 to arrive at your front-end DTI ratio. For example, if all your housing-related expenses total $1,000 and your monthly income is $3,000, your front-end DTI is 33%.

The front-end DTI is also known as the mortgage-to-income ratio or [housing expense ratio](https://www.investopedia.com/terms/h/housing_expense_ratio.asp).

## What Is a Good Front-End DTI Ratio?

Your front-end DTI ratio represents the percentage of your gross monthly income that goes to your total housing expenses. Mortgage lenders typically prefer a front-end DTI ratio of no more than 28% for borrowers looking to qualify for a mortgage. 

In reality, mortgage lenders may accept higher ratios depending on your [credit score](https://www.investopedia.com/terms/c/credit_score.asp), savings, down payment, and the type of mortgage loan. Paying your bills on time, earning a stable income, and maintaining a [good credit score](https://www.investopedia.com/articles/personal-finance/081514/what-do-credit-score-ranges-mean.asp) can also help you qualify for a [mortgage](https://www.investopedia.com/terms/m/mortgage.asp) loan.

Higher front-end DTIs can increase the likelihood of mortgage loan [defaults](https://www.investopedia.com/terms/d/default2.asp). For example, in 2009, many homeowners had front-end DTIs significantly higher than average. Consequently, mortgage defaults increased. In 2009, the government introduced [loan modification](https://www.investopedia.com/terms/l/loan_modification.asp) programs to get front-end DTIs below 31%.

### Note

The maximum acceptable DTI for qualified mortgages is 43%.

## Front-End DTI vs. Back-End DTI

The front-end DTI reflects the percentage of monthly gross income that comprises your expected monthly housing expenses. Conversely, the [back-end DTI ratio](https://www.investopedia.com/terms/b/back-endratio.asp) represents the percentage of your gross monthly income that goes to _all_ debt payments. In other words, the back-end DTI includes your total housing expenses plus all other [monthly debt payments](https://www.investopedia.com/articles/pf/12/good-debt-bad-debt.asp), such as:

*   Installment loans, such as auto or personal loans
*   Revolving credit, such as credit cards or lines of credit
*   Student loan payments
*   Lease payments
*   [Alimony](https://www.investopedia.com/terms/a/alimony.asp) and child support
*   Monthly payments for rental properties you own  
    

The back-end DTI ratio calculates the percentage of gross income going toward all monthly [debt](https://www.investopedia.com/terms/d/debt.asp) types, such as credit cards, car loans, and monthly housing payments.

The back-end DTI ratio is commonly known as the [DTI ratio](https://www.investopedia.com/ask/answers/081214/whats-considered-be-good-debttoincome-dti-ratio.asp) since it includes all [monthly debt obligations](https://www.investopedia.com/how-to-consolidate-debt-with-bad-credit-strategies-and-options-8557822) and housing payments. When a lender refers to your DTI, they are usually referring to the back-end DTI, meaning all of your monthly debts versus your monthly income.

Typically, mortgage lenders prefer to see borrowers with a back-end DTI ratio of no more than 33% to 36%.  

> **Important**
>
> The back-end DTI ratio can help qualify borrowers for other loans beyond mortgages, including personal loans, auto loans, and private student loans.

## Examples of DTI Ratios

Let's say that you're looking to buy a home, and you must calculate your front-end and back-end DTI ratios.  

### Front-End DTI

Your estimated total housing expenses for the new home's mortgage:

*   **Mortgage payment**: $1,700
*   **Mortgage insurance**: $100
*   **Homeowners insurance**: $200
*   **Property taxes**: $200
*   **Gross monthly income**: $7,000

Your total housing expenses equals $2,200, which gets divided by $7,000 of gross monthly income to arrive at your front-end DTI.

*   **Front-end DTI**: 31.4% ($2,200 ÷ $7,000)

### Back-End DTI

Your back-end DTI includes your total housing expenses plus other monthly debt. Below is an example of calculating your back-end DTI:

*   **Credit card**: $100
*   **Car loan payment**: $300
*   **Total housing expenses**: $2,200
*   **Gross monthly income**: $7,000

Your non-housing monthly debt payments total $400. When added to your housing expenses of $2,200, you have a total of $2,600 in monthly debt and housing payments, which gets divided by $7,000 in gross monthly income to arrive at your back-end DTI.

*   **Back-end DTI**: 37% ($400 + $2,200 ÷ $7,000)

In both calculations, we multiplied the decimals by 100 to create the percentages.

You have a 31.4% front-end ratio, which represents the percentage of your income that would go to housing expenses and a 37% back-end ratio when considering all debt payments.

Once you calculate your DTI ratios, you can discuss with your mortgage lender their requirements. If they require lower ratios, you can look for ways to improve them and consider speaking with a financial professional for help.  

## How Lenders Use Front-End DTI Ratio

Lenders use front-end and back-end DTI ratios to determine your ability to repay a home mortgage loan. A higher DTI can signal to mortgage lenders that you might be stretched thin financially, while a lower DTI suggests you have more monthly disposable income that isn't going to debt repayment.

Your DTI ratio represents just one metric since lenders also consider your income, assets, and employment history to gauge your ability to repay a mortgage loan. DTI ratios can play a significant role in decision-making for [mortgage loans](https://www.investopedia.com/mortgage-rates-5094943) and [refinancing](https://www.investopedia.com/best-mortgage-refinance-companies-5092956).  

> **Tip**
>
> Paying off credit cards, student loans, or other debts can improve your back-end DTI ratio and potentially increase the amount of home you can afford.

## Special Considerations

When preparing for a mortgage application, paying off your [high-interest debt](https://www.investopedia.com/the-best-personal-loans-8761582) can significantly improve your front-end DTI. However, paying off debt can be challenging since most potential homebuyers must save for the [down payment](https://www.investopedia.com/terms/d/down_payment.asp) and [closing costs](https://www.investopedia.com/terms/c/closingcosts.asp). 

If you think you can afford the mortgage, but your DTI is over the limit, a [co-signer](https://www.investopedia.com/terms/c/co_sign.asp) might help. However, if you can't make the payments, your credit score and your co-signer's credit could suffer.

## What Is Front-End Debt-to-Income (DTI) Ratio?

The front-end debt-to-income (DTI) ratio reflects the percentage of your gross monthly income that goes toward housing costs, including your mortgage payment, property taxes, homeowners insurance premiums, and homeowners association fees, if applicable.

## What Is a Good DTI Ratio to Buy a Home?

Generally, lenders look for a DTI ratio between 28% and 36% when qualifying a borrower for a mortgage. However, some qualified mortgage loans allow a DTI of up to 43%.

## How Can I Improve My DTI Ratio for a Mortgage?

Ways toimprove your DTI ratio include paying down credit cards and personal loans, reducing housing costs, and increasing income. A lower DTI can increase the amount you can afford to borrow when buying a home or help you get approved when [refinancing a mortgage](https://www.investopedia.com/best-mortgage-refinance-companies-5092956).

## The Bottom Line

Your front-end debt-to-income (DTI) ratio represents your monthly housing expenses versus your gross monthly income. The front-end DTI metric helps mortgage lenders determine whether you can afford to buy a home via a mortgage loan. Your DTI ratio includes all of your housing expenses and other monthly debts. Knowing how much of your monthly income goes to paying down debt can help you improve your credit score and get approved for loans.

> **Article Sources**
>
> 1.  Federal Deposit Insurance Corporation. "[How Much Home Can I Afford?](https://www.fdic.gov/consumers/consumer/moneysmart/podcast/documents/borrowing-money-how-much-mortgage-can-i-afford.pdf)" Page 1.
>     
> 2.  U.S. Department of Housing and Urban Development. "[Making Home Affordable](https://www.hud.gov/sites/documents/FEBRUARY2014MHAREPORT.PDF)," Pages 1–3.
>     
> 3.  Consumer Financial Protection Bureau. "[What Is a Debt-to-Income Ratio?](https://www.consumerfinance.gov/ask-cfpb/what-is-a-debt-to-income-ratio-why-is-the-43-debt-to-income-ratio-important-en-1791/)"
>     
> 4.  Veterans United. "[Debt-to-Income (DTI) Ratio Guidelines for VA Loans](https://www.veteransunited.com/futurehomeowners/va-loan-debt-to-income-guidelines/)."
>     
> 5.  Consumer Financial Protection Bureau. "[What Is a Co-Signer?](https://www.consumerfinance.gov/ask-cfpb/what-is-a-co-signer-en-745/)"