Debt to income ratio acts as a guiding hand for lenders in determining how much you can borrow. With debt to income ratio they can easily figure out your monthly payment and sue that figure top calculate your total loan amount.

Front End and Back End Ratio

Lenders calculate debt to income ratio with two numbers 33/38. The 33 (front end) is the housing expenses ratio and 38 (back end) is the long term debt ratio.

Housing Expense Ratio

Housing expense ratio is for measuring the percentage of your income that covers all your housing payments. Housing payments means everything in your monthly payment like principal, interest, taxes, and insurance.

Generally lenders set a limit as to where they want your debt to income ratios. For example, they may say they want your housing expenses should not exceed 28% of your gross monthly income. It is also referred as Front End ratio.

Long Term Debt Ratio

Long Term Debt ratio is for measuring the percentage of your income that covers all the debt payment. It includes your housing expenses (PITI), auto loans, credit card loans and some other debts.

Same as the housing expenses, your lenders sets a limit to your long term debt ratio. It is also referred as Back End ratio.