What does the 'front ratio' measure?

What does the 'front ratio' measure?

• A. 28% of monthly income
• B. 36% of monthly income
• C. 40% of monthly income
• D. 25% of monthly income

Answer: (A)

Front-end ratio represents the portion of gross monthly income that goes toward housing costs. It includes the mortgage payment (principal and interest) plus property taxes and homeowners insurance, and can also include HOA dues in some cases. It does not include other debts like car loans or credit card payments. Lenders typically cap this ratio around 28% to ensure enough income remains for other expenses, so about 28% of monthly income is used as the measure of housing affordability. The other percentages relate to different guidelines—back-end ratio includes all debts and is usually higher, while 25% or 40% would be stricter or looser than the standard front-end guideline.

Front-end ratio represents the portion of gross monthly income that goes toward housing costs. It includes the mortgage payment (principal and interest) plus property taxes and homeowners insurance, and can also include HOA dues in some cases. It does not include other debts like car loans or credit card payments. Lenders typically cap this ratio around 28% to ensure enough income remains for other expenses, so about 28% of monthly income is used as the measure of housing affordability. The other percentages relate to different guidelines—back-end ratio includes all debts and is usually higher, while 25% or 40% would be stricter or looser than the standard front-end guideline.