Lenders usually look at three pieces of your financial picture to determine the maximum value of the loan for which you qualify. These three pieces of information are your FICO score, your Front End Ratio and your Back End Ratio.
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Front Ratio
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Front ratio, also known as the Housing-Expense ratio,
suggests that the monthly payment (including taxes and any insurance)
should not exceed 28% of your gross monthly income.
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total monthly payment = gross monthly income * 0.28
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Back Ratio
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Back ratio, also known as the Debt to Income ratio,
suggests that the monthly home payment,
together with payments in your loan(s) and/or credit card(s)
should not exceed 36% of your gross monthly income.
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total monthly payment = (gross monthly income * 0.36) - monthly debt
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FICO Score
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This is the most common credit-scoring model used by lenders. Your FICO can range from 200 to 900. According to this model, the higher your score, the less likely you are to default on your loan.
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Of course, the acceptable limits for the front and back ratios vary from lender to lender. These are typical ratios; however, they can go much higher. Quicken Loans is generally more flexible when determining ratios. To find out how flexible they are, visit www.quickenloans.com.
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