# back-end ratio

## Back-End Ratio

In loans, the portion of a person's gross income that goes toward debt service. It is calculated by dividing all monthly debt payments by one's gross monthly income. Lenders use the back-end ratio when determining whether to extend credit to an individual. Some lenders use it in conjunction with the front-end ratio, while others consider the back-end ratio exclusively. The lower one's back-end ratio is, the more likely one is to receive a loan. Generally speaking, lenders do not make loans to a person with a back-end ratio of more than 0.36, but they make exceptions for good credit.

## back-end ratio

One method of analyzing a borrower's ability to meet underwriting requirements for a home loan.This method takes into account existing long-term debt of the applicant, plus the payments on the requested loan,in order to arrive at a percentage of income that will be devoted to debt service. Lenders typically like to see ratios below 36 percent of take-home pay. Contrast with front-end ratio,which compares only the requested loan against take-home pay.

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They consider two factors, front-end and back-end ratio which contributes to the decision.
The second DTI component -- the so-called back-end ratio -- measures your income against all your recurring monthly debts.
the back-end ratio at 36 percent, although the Federal Housing
iQualify Pro will take into account the following factors in the calculations: local property tax rate, local insurance rate, front-end ratio, back-end ratio, and percentage of downpayment.
The term "debt-to-income"(DTI) ratio is used to refer to the "back-end ratio" of a loan, or the sum of the monthly mortgage payment and all other recurring non-mortgage debt divided by monthly income.
The other ratio is called the back-end ratio. This is the ratio between the borrower's total debt (PITI plus other monthly debt payments) to the gross monthly income.
There are two mortgage qualification ratios widely used--the front-end ratio and the back-end ratio. The front-end ratio, or the mortgage debt service ratio, is typically limited to 28% of gross income.
The back-end ratio (or total debt-to-income ratio) is total monthly obligations (including auto loans, for example) divided by gross monthly income.
Additionally, the employee could not exceed a back-end ratio of more than 35%, which means current rent, car loan, student loan, credit card payments and other expenses could not exceed \$810 per month.
The greater the number of imperfections, the greater the likelihood of rejection, as various threshold levels are reached (for example, a 40 percent back-end ratio or 95 percent LTV).
Specifically, the proposal addresses the use of debt service coverage ratios, also known as "back-end ratios" which refer to the ratio of the mortgage payments relative to all of the borrowers' debt payments, to assign risk weights to mortgages held by Basel III-compliant institutions.
This led to abuses of the automated underwriting systems and borrowers getting loans with back-end ratios that consumed 65 percent to 70 percent or more of their true income.

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