Your debt-to-income ratio indicates your ability to pay your bills on time. If you’re overextended, you may find it hard to keep up with your payments. Think of both your front-end (housing) and back-end (total) debt ratio.
- Front-end ratio – This is your total housing payments versus your gross monthly income. Keep this ratio as low as possible to prove that you can keep up with all mortgages that you carry (both your primary residence and investment properties).
- Back-end ratio – This compares your total monthly debts to your gross monthly income. Think of debts like credit cards, installment loans, personal loans, car loans, plus your mortgages (existing and potential). The lower the back-end ratio is, the more likely you are to be a good candidate.