When calculating the debt ratio, which calculation best represents the front ratio?

The front ratio, often referred to as the housing ratio, specifically measures the percentage of a borrower’s gross monthly income that goes toward housing expenses. This includes elements such as the monthly mortgage payment, property taxes, insurance, and sometimes homeowners association (HOA) fees.

Calculating the front ratio requires this relevant portion of debt, which is the housing debt, to be divided by the gross monthly income. Gross monthly income represents the total income before any deductions, providing a fuller picture for lenders about how much of a borrower’s income is allocated toward housing expenses. This ensures borrowers are not overextending themselves financially in relation to their overall earning capacity.

In contrast, other calculations might involve net monthly income, which is the income remaining after taxes and deductions, or would not focus specifically on housing-related expenses, thus not providing an accurate representation of the front ratio.