What does the 'back ratio' measure?

What does the 'back ratio' measure?

• A. 28% of monthly income
• B. 36% of monthly income
• C. 40% of monthly income
• D. 32% of monthly income

Answer: (B)

Back ratio is the debt-to-income measure lenders use to gauge how much of your gross monthly income is already spoken for by debt. It looks at all recurring monthly payments—housing costs (principal, interest, taxes, and insurance) plus other debts like car loans, student loans, credit cards, alimony, and child support—and compares their total to your gross monthly income. This shows how much of your income is tied up in debt, indicating whether there’s room to take on a new mortgage. A common guideline is that this back-end ratio should be around 36% or lower for many conventional loans, though some programs allow higher with compensating factors.

Back ratio is the debt-to-income measure lenders use to gauge how much of your gross monthly income is already spoken for by debt. It looks at all recurring monthly payments—housing costs (principal, interest, taxes, and insurance) plus other debts like car loans, student loans, credit cards, alimony, and child support—and compares their total to your gross monthly income. This shows how much of your income is tied up in debt, indicating whether there’s room to take on a new mortgage. A common guideline is that this back-end ratio should be around 36% or lower for many conventional loans, though some programs allow higher with compensating factors.