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.

References in periodicals archive ?
They consider two factors, front-end and back-end ratio which contributes to the decision.
The back-end ratio referred to as the debt-to-income ratio calculates the gross income percentage which covers your debts, including mortgage, credit cards, child support and other loan payments, including how much cash you will be able to accumulate for a down payment.
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.
While both of these studies analyzed the correlation between the back-end ratio and default risk, an analysis of 179 FHA loans originated in Utah between 2000 and 2001 estimated the impact of a borrower's front-end ratio as well.
If the lender says that the back-end ratio cannot exceed 38%, this means that the total monthly debt, including the PITI, must be no more than 38% of the gross monthly income.
There are two mortgage qualification ratios widely used--the front-end ratio and the back-end ratio.
The back-end ratio (or total debt-to-income ratio) is total monthly obligations (including auto loans, for example) divided by gross monthly income.
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).
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 front-end ratio is the monthly housing debt (PITI) divided by the borrower's monthly gross income; the back-end ratio is a borrower's total monthly debt divided by monthly gross income.