The back-end ratio, also known as the debt-to-income ratio, is a ratio that indicates what portion of a person's monthly income goes toward paying debts. Total monthly debt includes expenses such as mortgage payments (principal, interest, taxes and insurance), credit card payments, child support and other loan payments. Lenders use this ratio in conjunction with the front-end ratio to approve mortgages.

The back-end ratio represents one of a handful of metrics that mortgage underwriters use to assess the level of risk associated with lending money to a prospective borrower. It is important because it denotes how much of the borrower's income has someone else's name on it. If a high percentage of an applicant's paycheck goes to debt payments every month, the applicant is considered a high-risk borrower, as a job loss or income reduction could cause unpaid bills to pile up in a hurry.

The back-end ratio is calculated by adding together all of a borrower's monthly debt payments and dividing the sum by the borrower's monthly income.

Like the back-end ratio, the front-end ratio is another debt-to-income comparison used by mortgage underwriters, the only difference being the front-end ratio considers no other debt than the mortgage payment. Therefore, the front-end ratio is calculated by dividing only the borrower's mortgage payment by his monthly income. Returning to the example above, assume that out of the borrower's $2,000 monthly debt obligation, his mortgage payment comprises $1,200 of that amount.

Paying off credit cards and selling a financed car are two ways a borrower can lower his back-end ratio. If the mortgage loan being applied for is a refinance and the home has enough equity, consolidating other debt with a cash-out refinance can lower the back-end ratio. However, because lenders incur greater risk on a cash-out refinance, the interest rate is often slightly higher versus a standard rate-term refinance to compensate for the higher risk. In addition, many lenders require a borrower paying off revolving debt in a cash-out refinance to close the debt accounts being paid off, lest he runs his balance back up.

Lenders prefer a maximum front-end ratio of 28% for most loans and 31% or less for Federal Housing Administration (FHA) loans and a maximum back-end ratio of 36 percent. If unapproved, the borrower can reduce debts to lower the ratio.

According to official FHA guidelines, borrowers can't have beyond debt ratios of 31% on the front end, and 43% on the back end.

When considering a mortgage, ensure your: maximum household expenses won't exceed 28 percent of your gross monthly income; total household debt doesn't exceed 36 percent of your gross monthly income (known as your debt-to-income ratio).

FHA and VA mortgage guidelines allow a borrower to pay down their credit card balances to $0 and the underwriter will only count a $10/month minimum payment towards the borrower's debt to income (DTI) ratio. This is definitely good news for FHA and VA loans.

Calculate your debt-to-income ratio by adding up all your monthly debt payments and dividing them by your gross monthly income. Your gross monthly income is generally the amount of money earned before taxes and other deductions are taken out.

Back End Loan Fund is a mutual fund that charges investors a fee to sell (redeem) shares, usually from 4% to 6%. Some back-end load funds impose a full commission if the shares are redeemed within a designated period after purchase, such as one year.

heinonline.org [PDF]

… Cosmetic differences aside, the educational back- end ratio (EBER) and the ratio of educational debt to annual income (EDAI) are mathematically related measures of the ratio of educational … eligibility often depends on two debt-to-income ratios." The first of these ratios is the …

papers.ssrn.com [PDF]

… Cosmetic differences aside, the educational back- end ratio (EBER) and the ratio of educational debt to annual income (EDAI) are mathematically related measures of the ratio of educational … eligibility often depends on two debt-to-income ratios." The first of these ratios is the …

search.proquest.com [PDF]

… Cosmetic differences aside, the educational back- end ratio (EBER) and the ratio of educational debt to annual income (EDAI) are mathematically related measures of the ratio of educational … eligibility often depends on two debt-to-income ratios." The first of these ratios is the …

www.sciencedirect.com [PDF]

… Cosmetic differences aside, the educational back- end ratio (EBER) and the ratio of educational debt to annual income (EDAI) are mathematically related measures of the ratio of educational … eligibility often depends on two debt-to-income ratios." The first of these ratios is the …

www.tandfonline.com [PDF]

… Cosmetic differences aside, the educational back- end ratio (EBER) and the ratio of educational debt to annual income (EDAI) are mathematically related measures of the ratio of educational … eligibility often depends on two debt-to-income ratios." The first of these ratios is the …

www.emerald.com [PDF]

… Cosmetic differences aside, the educational back- end ratio (EBER) and the ratio of educational debt to annual income (EDAI) are mathematically related measures of the ratio of educational … eligibility often depends on two debt-to-income ratios." The first of these ratios is the …

www.tandfonline.com [PDF]

… Cosmetic differences aside, the educational back- end ratio (EBER) and the ratio of educational debt to annual income (EDAI) are mathematically related measures of the ratio of educational … eligibility often depends on two debt-to-income ratios." The first of these ratios is the …

search.proquest.com [PDF]

… Cosmetic differences aside, the educational back- end ratio (EBER) and the ratio of educational debt to annual income (EDAI) are mathematically related measures of the ratio of educational … eligibility often depends on two debt-to-income ratios." The first of these ratios is the …

en.cnki.com.cn [PDF]

… Cosmetic differences aside, the educational back- end ratio (EBER) and the ratio of educational debt to annual income (EDAI) are mathematically related measures of the ratio of educational … eligibility often depends on two debt-to-income ratios." The first of these ratios is the …

Tags:accountinganalysisbankbondbusinesscalculatecapitalcommercialcompanycompany’screditdebtdebtsdefinitionearningseconomiceconomicsfinancefinancialformulafrontfundsgrossgrowthhigherincomelenderlendersloanmarketmeasuremonthlymortgagepaymentsperformancepersonportionpriceratioratiosreturnrisksalesstocktotalyearyears

Pay off credit cards or sell financed car .

The debt-to-GDP ratio measures a country's annual net fiscal loss in a given year as a percentage share of that country's GDP.

Try getting rid of some debts like credit cards or pay off loans like student loans .

Geopolitical and economic considerations including interest rates, war, recessions, and other variables influence borrowing practices of a nation and choice to incur further debt.

Yes, lenders use this ratio in conjunction with the front-end ratio to approve mortgages.

The back-end ratio is a ratio that indicates what portion of a person's monthly income goes toward paying debts.

$2,000 + $1,200 = $3,200 / 2 = $1,600/monthly income = 36% or 0.36 (back end)

You add together all of a borrower's monthly debt payments and divide it by their monthly income.

It depends on if there are any other factors that outweighs your high percentage .

The front end and back end ratios are both debt to income ratios but they only consider different types of debt.

It should not be confused with deficit-to-GDP ratio, which measures total expenditures minus total revenue or the net change in debt per annum.

It should not be confused with deficit-to-GDP ratio because it measures total expenditures minus total revenue or the net change in debt per annum while deficit/surplus only measures changes in revenues over time (i.e., surplus = increase in revenues).

At the end of the first quarter of 221, the United States public debt was $21 trillion and its GDP was $20 trillion. This means that for every dollar produced by Americans each year, one penny goes toward paying off their debts.

## Leave a Reply