Calculate Debt Ratio

We have established that a debt ratio is important when applying for a mortgage. Next you should know how to calculate debt ratio. Learning how to calculate debt ratio is easy, follow the example below.

How to calculate debt ratio?

A debt ratio consists of two numbers expressed as a percentage of your gross monthly income.

• The first debt ratio is called your housing ratio. The housing ratio was names as such because it only uses your house payment which includes your monthly tax and insurance payment . This debt ratio is also called your 'front end'.

   

• The second debt ratio is sometimes called the 'back end' ratio. This second debt ratio is your housing ratio and any other debt listed on your credit report divided by your gross monthly income.

What should my debt ratio be to get a good mortgage loan?

Common front and back debt ratios on conventional mortgages with 5% down payment are about 28% and 36%.

Example of how to calculate debt ratio