What does the back-end ratio include in mortgage qualification?

The back-end ratio is a critical metric used in mortgage qualification that calculates the percentage of a borrower's gross monthly income that goes toward paying all of their monthly debt obligations. This includes not only housing costs such as the mortgage payment, property taxes, and insurance but also all other recurring debt payments such as credit card debt, car loans, student loans, and any other monthly debt payments.

Lenders typically use the back-end ratio to assess a borrower's ability to manage their overall debt and to ensure it is within an acceptable range, usually around 36% to 43% of gross monthly income, depending on the lender's standards. This comprehensive approach helps lenders evaluate the borrower's financial health and repayment capacity, making it a critical component in the mortgage underwriting process.

In contrast, the other options focus on narrower aspects of the borrower's financial situation and do not encompass the full scope of obligations considered in the back-end ratio. For instance, considering only housing costs would ignore essential ongoing debts that could impact a borrower’s ability to make mortgage payments, and limiting the analysis to credit card debts does not provide a complete financial picture. Employment income is also not part of the back-end ratio calculation; rather, it serves as a basis for determining what