Start with the monthly number, end with a price range
Housing ratios, explained without the jargon
The short version
Lenders compare your monthly debts with your gross monthly income. The housing-only comparison is often called the front-end ratio; the version that adds car, card, student and other debt payments is the back-end, or debt-to-income, ratio. Each loan program sets its own limits, so ask the lender which ones apply to you.
Last reviewed against the primary sources listed below.
What goes into each ratio
| Ratio | What is counted | What is left out |
|---|---|---|
| Front-end (housing) | Principal, interest, property tax, homeowners insurance, mortgage insurance, HOA dues | Utilities, groceries, childcare |
| Back-end (debt-to-income) | The housing cost above plus minimum payments on other debts | Living costs that are not debts |
Why ratios use gross income
Ratios are measured against income before taxes and deductions, so the same ratio can feel tighter for one household than another. The CFPB explains debt-to-income and why a lower figure leaves more room in your monthly budget.
Using ratios with this workbook
Run your comfortable number through the reverse calculator first. If a lender later says you qualify for more, the ratio tells you how they got there; it is not a reason to spend more.
You asked, we answered
Can I afford a 500K house on a 200k salary?
It depends on your debts, taxes, insurance, the rate you are quoted and the cash you bring. Put your own monthly budget and quote into the reverse calculator to see whether that price lands inside your range.
Do lenders use take-home or gross income?
Debt-to-income ratios are generally measured against gross monthly income, before taxes. Your own budget should use take-home pay.