Back-End Ratio Meaning
The Back-End Ratio (or Debt to Income Ratio) measures how much of a person’s monthly income is spent on debt repayment. Own payments, including mortgage payments (as part of PITI), credit card payments, child support, and other loan payments, are included in the totals. To compare mortgages, lenders utilize the front-end ratio.
Back-End Ratio Example
Your back-end ratio is 0.40, or 40%, if your monthly income is $5,000 ($60,000/12) and your total monthly debt payments are $2,000. Lenders want to see that the ratio does not surpass 36 percent at the end of the process, although some lenders will make exceptions for ratios up to 50 percent if you have good credit. Some lenders solely look at this ratio when accepting a loan since they don’t like it when it’s combined with the front end ratio.
Read Also: WHAT IS ABENOMICS?