Front-End Ratio
Front End Ratio - Basically 28% of your gross monthly income.
Lenders use your front end ratio or 28% of your gross monthly income, as the maximum amount you should spend on PITI ( principal, interest,tax and insurance) which is your monthly housing expense.
Monthly gross income is simply annual income divided by 12 (months). Lenders use the front-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 (PITI) 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.
