Are you interested in knowing your debt-to-income ratio to determine how much house you can afford? You don't need to go to a bank to do this. You can do it on your own by following five easy steps. But first you need to know a bit of mortgage lingo to understand how lenders look at your debts when they evaluate your qualifications for a mortgage.

Front-End and Back-End Ratios Explained

Let's say your car payment is $285 a month, your credit card bills are $220 a month, and you pay $95 a month on your student loans. Therefore, your total monthly debts are $600. If your total income is $3,200 monthly, then your debt-to-income ratio is 18.75 percent ($600 divided by $3,200). This obviously excludes your housing costs. When you find a home you want to purchase, a lender will look closely at two things:

• Your housing debt compared to your income
Your housing expense is known as your "front-end" ratio.

• Your overall debt compared to your income
Your total debt, housing plus other bills, is known as your "back-end" ratio.


Generally speaking, conventional lenders, which are conservative in their lending practices, like to see maximum debt-to-income ratios of 28 percent for the front-end expenses and 36 percent for the back-end expenses. This means your housing costs should take up no more than 28 percent of your gross income, and your housing expenses plus other bills should represent no more than 36 percent of your gross pay. There are, however, many, exceptions to this rule.

Some lenders will allow your housing costs to be as much as 40 percent or more of your salary, and your total debts to be as much as 50 percent or more of your income. So don't get bogged down by the traditional 28/36 guideline for your debt-to-income ratios. Nor should you be discouraged and think that you won't qualify for a mortgage if your ratios don't conform to these numbers. Use them as a frame of reference so you know how close or far off you are from meeting traditional lending criteria. Many banks have "expanded" criteria programs, meaning they offer loans with less stringent debt-to-income requirements and even easier credit requirements to allow you to get a mortgage.

So here's how to calculate your own ratios:

Step 1: Write down your estimated housing expense, including principal, interest, real estate taxes and homeowner's insurance. This figure represents your housing expense, or front-end ratio.

Tip: Use an online mortgage calculator for this estimate. At one site, www.bankrate.com, you just enter a loan amount, loan term and interest rate, and Bankrate.com can tell you the mortgage payment.

For example, I used the site's calculator to find out the mortgage for a $250,000 house with a $12,500, or 5 percent down payment. So I entered a $237,500 loan amount. The loan term I used was 360 months, or 30 years, at an interest rate of 7 percent. The mortgage payment was $1,385 for principal and interest payments only. You can do a Google search for other mortgage calculators that will let you plug in estimates for taxes and insurance.

Step 2: Tally up the minimum payments required on all your outstanding bills, then write the total number down.

Remember: You don't need to add in expenses such as your cell phone, Internet service or utilities, only debts that require 10 months or longer to repay.

Step 3: Add the number from Step 1 to the number from Step 2. This is your back-end ratio, the total of your housing plus other expenses.

Step 4: Write down your total gross monthly income.

Step 5: Divide the number from Step 1 by the number in Step 4.

This figure is the percentage of income you spend exclusively on housing. As you can see, the figure you get from Step 5 is your front-end ratio; the number you come up with from Step 3 is your back-end ratio.

How do your numbers look?

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Lynnette Khalfani-Cox, an award-winning financial news journalist and former Wall Street Journal reporter for CNBC, has been featured in the Washington Post, USA Today, and the New York Times, as well as magazines ranging from Essence and Redbook to Black Enterprise and Smart Money. Check out her New York Times best seller 'Zero Debt: The Ultimate Guide to Financial Freedom.'