Front-End Ratio Mortgage Calculator

What is a Front-End Ratio Mortgage Calculator?

A Front-End Ratio Mortgage Calculator is a financial tool used to determine the percentage of a person's gross monthly income that goes towards housing expenses. This ratio is crucial in assessing a borrower's ability to afford a mortgage and is widely used by lenders in the loan approval process.

Formula for Front-End Ratio Calculation

The formula for calculating the front-end ratio is:

\[FER = \frac{H}{I} \times 100\]

Where:

• FER = Front-End Ratio
• H = Monthly Housing Expenses (including mortgage payment, property taxes, insurance, and HOA fees)
• I = Monthly Gross Income

Calculation Steps

1. Determine your total monthly housing expenses.
2. Determine your monthly gross income.
3. Divide your monthly housing expenses by your monthly gross income.
4. Multiply the result by 100 to get the percentage.

Example

Let's consider a scenario with the following details:

• Monthly Gross Income: $5,000
• Monthly Housing Expenses: $1,200
• Maximum Allowable Front-End Ratio: 28%

Calculation:

1. Front-End Ratio = ($1,200 / $5,000) × 100 = 24%
2. Maximum Allowable Housing Expense = $5,000 × 0.28 = $1,400

In this example, the front-end ratio of 24% is within the maximum allowable ratio of 28%, indicating that the housing expenses are considered affordable based on the individual's income.

Note: While a front-end ratio of 28% or less is generally considered good, lenders may have different requirements. It's important to consider other financial obligations and personal financial goals when assessing affordability.