How is back-end DTI calculated?

• A. Housing expenses divided by gross monthly income.
• B. Total monthly debt payments (including housing expenses) divided by gross monthly income.
• C. Net income divided by total debts.
• D. Total monthly debts divided by net income.

Answer: (B)

Back-end DTI measures how much of your gross monthly income goes toward all recurring debt payments, including housing costs, each month. You calculate it by adding up all monthly debt obligations (mortgage or rent payment, plus other debts like auto loans, credit cards, student loans, etc.) and dividing that total by your gross (pre-tax) monthly income. This ratio shows the portion of income that would be committed to debt payments if you took on the new loan.

Example: total monthly debt payments are $2,000 and gross monthly income is $5,000. Back-end DTI = 2,000 / 5,000 = 0.40, or 40%.

Why this is the right approach: it considers all debt obligations, not just housing, and uses gross income as the baseline lenders rely on pre-tax pay to gauge overall indebtedness. The other options either focus only on housing (front-end) or use net income, which isn’t how debt affordability is evaluated in underwriting.