Front-End Ratio
A ratio that indicates what portion of an individual's income is used to make mortgage payments. It is calculated as an individual's monthly housing expenses, divided by his or her monthly gross income, and then expressed as a percentage.
Monthly housing expenses include the mortgage principal, interest, taxes and insurance payments - collectively known as PITI. Monthly gross income is simply annual income divided by 12 (months). Lenders use the front-end ratio in conjunction with the back-end ratio to approve mortgages. Example...
FRONT END RATIO : Annual salary $40,000/12(months) = $3,333 x 28% = $933
So in this example, the borrowers maximum house payment per month would be $933.
For example, if your annual income is $40,000, your monthly income is $3333(40,000/12). Typically
lenders allow 28% as the maximum amount allocated for housing expense. Lenders vary on the
percentage maximum, some as high as 36%.
Use this calculator, How much can I afford to get an idea of your maximum loan amount . Simply multiply your MONTHLY income by .28 and enter it into the Desired Monthly Morthgage Payment box.
