front-end ratio

Front-End Ratio

A ratio of an individual's monthly mortgage expenses to his/her monthly income. The expenses used in this calculation are usually the principal, interest, taxes, and insurance that an individual owes on a monthly basis. Mortgage lenders often use front-end ratios to determine whether an individual has sufficient income in order to qualify for a mortgage. Generally speaking, lenders look for a front-end ratio of less than 0.30 - 0.33. Persons with ratios in excess of that have more difficulty securing mortgages. See also: Back-end ratio.

---

front-end ratio

A mortgage qualification calculation prepared by taking the proposed monthly mortgage payments, plus real estates taxes and insurance, and dividing that number by the borrower's gross monthly income without reduction for taxes.

Example: Steve makes $4,000 per month. The mortgage for a home he would like to buy would result in payments of $1,100 per month. His front-end ratio is $1,100 $4,000 27.5%. This is an acceptable ratio for lenders, who would prefer to keep it at 29 percent or lower.