What is debt-to-income (DTI) and how do front-end and back-end DTIs influence mortgage underwriting?

• A. DTI is monthly debt payments divided by gross monthly income; front-end includes housing costs only; back-end includes all debt.
• B. DTI measures credit score impact.
• C. DTI is the ratio of property taxes to income.
• D. DTI is the total loan-to-value ratio.

Answer: (C)

Debt-to-income shows how much of your monthly gross income is committed to debt payments. The front-end measure looks only at housing costs—mortgage principal and interest, property taxes, homeowners insurance, and mortgage insurance if applicable—divided by gross monthly income. The back-end measure adds all other recurring monthly debts (car loans, student loans, credit cards, alimony or child support, etc.) to the housing payment, then divides by gross monthly income.

In mortgage underwriting, these ratios help lenders judge whether you can afford another loan payment. Lower front-end and back-end DTIs make approval more likely and can yield better terms. Higher DTIs signal more financial strain and may lead to tighter conditions or denial, unless there are compensating factors such as a higher credit score, larger down payment, or substantial financial reserves.

Example: with a gross monthly income of 6,000, monthly housing costs of 1,500, and other debts totaling 1,000, the front-end DTI is 1,500 / 6,000 = 25%. The back-end DTI is (1,500 + 1,000) / 6,000 = 41.7%.