What does the "back" or "bottom" ratio include when assessing a borrower's financial situation?

The "back" or "bottom" ratio, often referred to as the debt-to-income (DTI) ratio, assesses a borrower's total monthly financial obligations in relation to their gross monthly income. This ratio takes into account not only housing costs, such as the mortgage payment (including principal, interest, taxes, and insurance), but also all other recurring debts, such as credit card payments, auto loans, student loans, and any other monthly debt obligations.

Understanding this ratio is crucial for lenders when evaluating a borrower's ability to manage monthly payments and to determine the risk of lending. By including both housing costs and additional debts, the back ratio provides a more comprehensive picture of a borrower's overall financial health and repayment capacity. This holistic approach is essential in the lending process, ensuring that borrowers are not over-leveraged and can comfortably meet their financial responsibilities.