Definition
Back-end ratio measures all your monthly debt payments (mortgage plus car loans, credit cards, student loans, etc.) relative to gross monthly income. It shows lenders whether you can cover everything. Most want this below 43% to ensure you have breathing room.
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The back-end ratio includes the mortgage payment plus car loans, credit cards, student loans, and other debts. Most lenders want this ratio below 43% for conventional loans. This ensures borrowers can cover all obligations.
Pro Tip
Reduce existing debt before applying for a mortgage to improve your back-end ratio and qualify for better rates.
Example
A borrower earning $6,000 monthly with a $1,500 mortgage, $400 car loan, and $300 student loan has a 30% back-end ratio ($2,200 ÷ $6,000).