In relation to PITI, which statement is true about the front-end ratio?

In relation to PITI, which statement is true about the front-end ratio?

• A. It is used to compute Max PITI
• B. It includes debt payments
• C. It is equal to the back-end ratio
• D. It is not used in underwriting

Answer: (A)

The front-end ratio is the housing expense ratio, comparing what you pay for housing (PITI) to your gross monthly income. Its purpose is to cap how large the housing payment can be, so lenders can determine the maximum PITI a borrower can afford. Because of this, it’s used to compute the maximum PITI that a borrower can qualify for under underwriting guidelines. For example, if gross monthly income is $6,000 and the front-end limit is 28%, the max PITI considered would be $1,680. The front-end ratio does not include other monthly debt payments—that’s handled by the back-end ratio—so it’s not the same as the back-end ratio. It is indeed used in underwriting to assess housing affordability.

The front-end ratio is the housing expense ratio, comparing what you pay for housing (PITI) to your gross monthly income. Its purpose is to cap how large the housing payment can be, so lenders can determine the maximum PITI a borrower can afford. Because of this, it’s used to compute the maximum PITI that a borrower can qualify for under underwriting guidelines. For example, if gross monthly income is $6,000 and the front-end limit is 28%, the max PITI considered would be $1,680. The front-end ratio does not include other monthly debt payments—that’s handled by the back-end ratio—so it’s not the same as the back-end ratio. It is indeed used in underwriting to assess housing affordability.