When analyzing a borrower’s loan application (Form 1003), lenders use two different debt ratios to determine if the borrower can afford his obligations. Know as the “Front” and “Back” ratios, the front ratio consists of monthly housing expense know as PITI (principal, interest, taxes, home owner’s insurance and home owner’s dues, if any) divided by gross monthly income. The back ratio consists of PITI plus all monthly consumer debt payments (cars, credit cards, student loans) divided by gross monthly income.

Fannie Mae / Freddie Mac guidelines say that the front and back ratios shouldn’t exceed 28 over 36 (28/36) but there is sometimes some play with these ratios with certain compensating factors. If your ratios exceed the standard don’t worry as many lenders will allow higher ratios.  Or, other loan programs such as FHA will allow ratios of 31% / 43%.

It’s best to have your loan officer pull your credit report early in the process so you know exactly what consumer debt shows on it. This will also give you a chance to improve your ratios by maybe paying off low consumer debt balances.

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