The back-end ratio includes which components in its numerator?

The back-end ratio includes which components in its numerator?

• A. PITI only
• B. PITI plus debt
• C. Debt only
• D. Gross income

Answer: (B)

Back-end ratio looks at all of a borrower’s monthly debt obligations relative to gross monthly income. The numerator is the sum of every monthly debt payment the borrower must make, including the housing payment components (PITI) plus other debts such as car loans, student loans, credit card minimums, alimony, etc. So the total monthly debt payments are PITI plus those other debt obligations. The reason this is the best choice is that it captures the borrower's overall debt load, not just housing costs. The front-end would use PITI alone in the numerator, the “debt only” option would omit the housing payments, and gross income is what you compare to (the denominator), not part of the numerator.

Back-end ratio looks at all of a borrower’s monthly debt obligations relative to gross monthly income. The numerator is the sum of every monthly debt payment the borrower must make, including the housing payment components (PITI) plus other debts such as car loans, student loans, credit card minimums, alimony, etc. So the total monthly debt payments are PITI plus those other debt obligations. The reason this is the best choice is that it captures the borrower's overall debt load, not just housing costs. The front-end would use PITI alone in the numerator, the “debt only” option would omit the housing payments, and gross income is what you compare to (the denominator), not part of the numerator.