Back-End Debts

• Lenders only consider your fixed monthly payments, along with your expected future house payment, when calculating your back-end DTI ratio. Fixed monthly debts include car and student loans, credit card payments and court-ordered support payments such as child and spousal support. If you owe a federal tax lien, FHA will also include this payment in your back-end ratio calculations. Lenders do not include other monthly bills such as utilities and insurance payments in your back-end ratio.
  
  

Calculation Factors

• Lenders use your gross income, or income before voluntary deductions and federal and state income taxes, to determine both your back- and front-end DTI ratio.
  
  After the lender adds up your debts, it adds them to your expected new monthly mortgage payment. Lenders include the expected principal, interest, taxes and insurance (PITI) in your mortgage payment and not just the expected principal and interest on the loan.
  
  

Back-End Ratio Example

• The following example gives you a better idea of how FHA lenders calculate your back-end ratio. Let's say your gross income is $5,000 per month, your fixed debt payments are $1,000 per month and you want to purchase a $150,000 home. The expected PITI on that home is $1,500 per month. Add that to your existing fixed debt payments of $1,000 and you have $2,500. To calculate your back-end ratio, you divide your monthly debts of $2,500 by your gross income of $5,000 to get 50 percent. This back-end percentage is too high for an FHA loan.
  
  

Lowering Back-End Ratios

• A back-end ratio is simply a starting point for how much mortgage you can afford. If the first calculation is above 41 percent, one way you can you can lower the ratio is by paying off or paying down some of your fixed monthly debts or by putting a bigger down payment than the 3.5 percent FHA requires. You should also know that any fixed monthly debts for which you have less than nine months to pay, are not included in your back-end ratio calculations.