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FICO Score & Front End Ratio

by Don Rafner, studioD

Mortgage lenders consider several factors when determining whether you qualify for a loan. Your FICO credit score and front-end, debt-to-income ratio provide lenders with information that shows how likely you are to make your monthly mortgage payments. If your FICO score is too low or your front-end ratio too high, you might struggle to qualify for a mortgage loan.

FICO Credit Score

When reviewing your application for a mortgage loan, a lender takes a close look at your three-digit FICO credit score. This score tells lenders how well you've managed your money in the past. Your credit score reflects whether you've missed several car payments, run up large amounts of debt and often paid your credit-card bills late. A high score, though, means that you pay your bills on time and are not overwhelmed with credit-card debt. Lenders vary, but in general, most consider FICO credit scores of 740 or higher to be good. You might struggle to obtain a conventional loan with a credit score under 640. You can, though, obtain a mortgage loan insured by the Federal Housing Administration -- better known as an FHA loan -- with a credit score as low as 500.

Front-End Ratio

Lenders also consider whether you make enough money each month to afford a mortgage payment. The lender determines this by calculating your front-end, debt-to-income ratio. This ratio provides lenders with a quick look at how much of your gross monthly income -- your income before taxes are taken out -- is consumed by your total estimated mortgage payment, including principal, taxes, interest and insurance. In general, lenders want your total housing payment to equal no more than 28 percent of your gross monthly income. If your front-end ratio is higher than this, you might struggle to convince a conventional mortgage lender to loan you money.

Interest Rates

Your FICO credit score and front-end debt-to-income ratio also help determine the interest rate you'll pay on your mortgage. In general, lenders reserve their lowest interest rates for borrowers with a front-end ratio below 28 percent and a FICO credit score of 740 or higher. This is important; a lower interest rate can save you hundreds of dollars each month. If you take out a $200,000, fixed-rate, 30-year mortgage loan with an interest rate of 6 percent, you'll pay about $1,199 a month. If you take out that same loan but drop your interest rate to 3.5 percent, you'll pay just about $898 a month.

Other Factors

Lenders don't just consider your front-end ratio and FICO credit score when determining whether you qualify for a loan. They also look at the amount of money you can provide in the form of a down payment, how long you've worked with your current employer, how long you've been employed in the same field and how your total monthly debts -- including your estimated new mortgage payments, minimum monthly credit-card payments and car-loan payments -- compare to your gross monthly income. The stronger your overall financial health, the more likely you'll be able to qualify for a mortgage loan even if your front-end ratio and FICO credit score aren't as strong as you'd like.

About the Author

Don Rafner has been writing professionally since 1992, with work published in "The Washington Post," "Chicago Tribune," "Phoenix Magazine" and several trade magazines. He is also the managing editor of "Midwest Real Estate News." He specializes in writing about mortgage lending, personal finance, business and real-estate topics. He holds a Bachelor of Arts in journalism from the University of Illinois.