REAL TipS: BUYING

Front and back ratios

When applying for a mortgage, a large part of the process includes determining just how much home you can afford. Traditionally, lenders look at what are called front and back ratios.

The front ratio is the estimated total mortgage payment including principal, interest, taxes and insurance, as well as any homeowners’ association fees, divided by your total gross income. Most lenders prefer this amount to be below 28%. The back ratio includes those expenses and any other debt you may have—such as credit card balances, student loans, and car payments—divided by your gross income. Lenders traditionally like to keep this figure at or below 36%. While these percentages are not etched in stone, they are good a good starting point for determining what size loan you might qualify for.

Texas Association of Realtors®