If you qualify for a government-backed mortgage through the FHA, VA, or USDA, a lender could approve your application with a higher ratio. You should also remember that the 28/36 rule mainly applies to conforming mortgages. You could also still be approved with higher debt ratios, but just pay a higher rate than you would if you had less debt. Maybe you have an excellent credit score or more than 20% for a down payment. There are some exceptions.Ī lender may still approve your application if other parts of your financial profile are exemplary. If you have too much debt to pass the 28/36 test, don't throw in the towel just yet. Your monthly debt payments come to $1,600 total.ĭivide $1,600 by your gross monthly income ($5,000) to get 0.32. Maybe you're paying $1,300 toward your house each month, $50 toward your credit cards, and $250 toward student loans. The back-end ratio refers to housing payments along with payments toward credit cards, student loans, car loans, personal loans, alimony, and child support. The back-end ratio is important because even if your housing payments come to less than 28% of your gross income, you might have other debts that make you a higher lending risk. According to the 28/36 rule, you'd ideally want your back-end ratio to be 36% or less. This is the ratio of your total monthly debt payments compared to your gross monthly income. It could also be called the "debt-to-income ratio." ![]() You also may hear the term "back-end ratio" in the mortgage lending process. Added together, you're paying $1,300 per month toward your home.ĭivide $1,300 by $5,000 for a total of 0.26. You pay $1,000 toward the principal and interest, $150 toward property taxes, $100 toward homeowners insurance, and $50 in HOA dues. Let's say your gross income is $5,000 per month. Keep in mind that utility bills are not part of your front-end ratio.
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