They consider two factors, front-end and back-end ratio which contributes to the decision.
The back-end ratio referred to as the debt-to-income ratio calculates the gross income percentage which covers your debts, including mortgage, credit cards, child support and other loan payments, including how much cash you will be able to accumulate for a down payment.
The second DTI component -- the so-called back-end ratio
-- measures your income against all your recurring monthly debts.
the back-end ratio
at 36 percent, although the Federal Housing
iQualify Pro will take into account the following factors in the calculations: local property tax rate, local insurance rate, front-end ratio, back-end ratio
, and percentage of downpayment.
While both of these studies analyzed the correlation between the back-end ratio
and default risk, an analysis of 179 FHA loans originated in Utah between 2000 and 2001 estimated the impact of a borrower's front-end ratio as well.
If the lender says that the back-end ratio
cannot exceed 38%, this means that the total monthly debt, including the PITI, must be no more than 38% of the gross monthly income.
There are two mortgage qualification ratios widely used--the front-end ratio and the back-end ratio
The back-end ratio
(or total debt-to-income ratio) is total monthly obligations (including auto loans, for example) divided by gross monthly income.
The greater the number of imperfections, the greater the likelihood of rejection, as various threshold levels are reached (for example, a 40 percent back-end ratio
or 95 percent LTV).
Additionally, the employee could not exceed a back-end ratio
of more than 35%, which means current rent, car loan, student loan, credit card payments and other expenses could not exceed $810 per month.
The front-end ratio is the monthly housing debt (PITI) divided by the borrower's monthly gross income; the back-end ratio
is a borrower's total monthly debt divided by monthly gross income.