How this number is made
Lenders divide debt payments by gross income. The front-end ratio is housing alone. The back-end ratio adds the other debts. Neither ratio is an approval.
- Use gross income, before tax.
- Other debts are the minimums on a credit report: cars, student loans, cards, not groceries.
Formula
Front-end = housing ÷ gross. Back-end = (housing + other debts) ÷ gross.
Worked example
With the figures already in the form, back-end debt-to-income is 33.1%.
Questions
Is 43% the cutoff?
It is a common conventional reference point. FHA, VA, and bank portfolio loans use other numbers, and they also look at credit and cash reserves.
Do I include a car I am about to pay off?
If the lender will ignore it, leave it out. If the payment is still on the report, include it until they say otherwise.