According to Fannie Mae and Freddie Mac, what are the ideal debt ratios for a conforming loan?

Fannie Mae and Freddie Mac, which are government-sponsored enterprises (GSEs), set forth guidelines that help determine the loan eligibility of borrowers, including their capacity to manage debt. The ideal debt ratios considered for a conforming loan are known as the front-end and back-end ratios.

The front-end ratio refers to the percentage of a borrower’s gross monthly income that can go towards housing costs, which includes the mortgage payment (principal, interest, taxes, and insurance). The back-end ratio, on the other hand, encompasses all monthly debt obligations, such as housing costs plus other debts like car loans and credit card payments.

The guideline commonly accepted by these GSEs is a front-end ratio of no more than 28% and a back-end ratio of no more than 36%. This means that borrowers should not spend more than 28% of their gross monthly income on housing expenses and should limit total debt payments to 36% of their income. Therefore, the ratios of 28/36 align perfectly with the standards established by Fannie Mae and Freddie Mac for conforming loans.

In the context of the question, this choice accurately reflects the conventional measures used to assess a borrower’s financial stability and repayment capacity, making it