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.