How do I Calculate the Debt Ratio for a Mortgage?

by Rocco Pendola, Demand Media

    Unfortunately your good looks, your undying love for one another and your lifelong dream to buy a home, have a dog, a pack of kids and a white picket fence does little to get your bank to approve a home loan for you. You'll need things your mortgage underwriter can sink her teeth into, such as a down payment, good credit and respectable debt-to-income ratios. While evaluating your credit worthiness, lenders look at two types of debt-to-income ratios -- one on the front-end and one on the back-end.

    Front-End Ratio

    Step 1

    Figure out your gross monthly income. Gross doesn't refer to how you feel when you compare what you make to Tiger Woods; rather gross income is how much you make before taxes and other deductions. You can generally figure this out by reviewing pay stubs, dividing your annual household income by 12 or buying your HR person lunch.

    Step 2

    Multiply your gross monthly income by 0.28. For instance, if your gross monthly income is $5,000, your front-end debt-to-income ratio equals $1,400. Generally speaking, the Bankrate.com website notes that your front-end debt-to-income ratio should not exceed 28 percent of your gross income.

    Step 3

    Write this number down. Tape it to your fridge. Paste it to your forehead. Not only will it be tough to qualify for a mortgage payment greater than $1,400 (or whatever your number is), but it will be difficult to get approved for a heftier payment unless you can woo your underwriter with some other splendid portion of your financial picture, such as a sizable inheritance or a massive stock portfolio.

    Back-End Ratio

    Step 1

    Gather all of your monthly debt obligations. This includes credit card debt, auto loans, student loans, personal loans, the anticipated mortgage payment and any other monthly debt-related obligations. Add them all up, hold your nose and write this number down. Tape it to the freezer or paste it to the other side of your forehead.

    Step 2

    Rummage through that pile on your desk or kitchen table and find the piece of paper with your gross monthly income on it.

    Step 3

    Multiply your gross monthly income by 0.36. As Bankrate.com indicates, the total of all of your debt payments should not exceed 36 percent of your gross income. For instance, if you make five grand a month, your total debt should be no more than $1,800 a month. If it is, cue the choir, you face an incline when trying to secure a mortgage and paying for one if you manage to get approved.

    About the Author

    As a writer since 2002, Rocco Pendola has published numerous academic and popular articles in addition to working as a freelance grant writer and researcher. His work has appeared on SFGate and Planetizen and in the journals "Environment & Behavior" and "Health and Place." Pendola has a Bachelor of Arts in urban studies from San Francisco State University.