# Back-End Ratio

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Back-End Ratio
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 (made up of PITI), credit-card payments, child support and other loan payments. Lenders use this ratio in conjunction with the front-end ratio to approve mortgages.

Also known as "debt-to-income ratio".

For example, if your monthly income is \$5,000 (\$60,000/12) and your total monthly debt payments are \$2,000, your back-end ratio is 0.40 or 40%. Generally, lenders like to see a back-end ratio that does not exceed 36%; however, there are lenders who make exceptions for ratios of up to 50% if you have good credit. Some lenders consider only this ratio when approving mortgages, as opposed to using it in conjunction with the front-end ratio.

Investment dictionary. . 2012.

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