| Front-End Ratio | |
 A ratio that indicates what portion of an individual's income is used to make mortgage payments. It is calculated as an individual's monthly housing expenses, divided by his or her monthly gross income, and then expressed as a percentage. Monthly housing expenses include the mortgage principal, interest, taxes and insurance payments - collectively known as PITI. Monthly gross income is simply annual income divided by 12 (months). Lenders use the front-end ratio in conjunction with the back-end ratio to approve mortgages. |
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 For example, if your annual income is $60,000, your monthly income is $5,000(60,000/12). By asking your lender what they require your front-end ratio to be for them to approve your mortgage, you can figure how much of that $5,000 you can allocate to your mortgage payments. If the required front-end ratio is 31%, you can allocate $1,550 (5,000 x 0.31). Thus, if your PITI is $1,550 or less, you would be approved. |
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 Mortgages: How Much Can You Afford? - Answering this means number-crunching as well as factoring in other considerations and expenses. Understanding the Mortgage Payment Structure - We explain the calculation and payment process as well as the amortization schedule of home loans. Understanding Your Mortgage - We walk through the steps needed to secure the best loan to finance the purchase of your home. What is the best way to pay off my mortgage? |
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