When qualifying the applicant's income, the back-end ratio is the total debt-to-income (DTI) ratio limit that deals with all long-term liabilities. Unlike the front-end ratio that considers only the housing expense qualification—which is also considered long-term—the back-end ratio includes all other long-term debts, as well as the housing expense. The conforming loan limit for the back-end ratio is usually 33% to 38%, which means that the sum total of all long-term monthly payments (including total housing expenses) should not exceed 33% to 38% of the borrower's gross income, depending on the specific loan program. Thus, if you add together the monthly payments on all your loans, credit cards and projected housing expenses, then divide by your gross monthly income, you will arrive at your projected back-end ratio. However, certain nonconforming programs allow back-end ratios in excess of 55%. For more information, see the "Analyzing Employment and Income" article in the "Loan Process" section.
Was this article helpful?