back-end ratio - a lending term referring to the portion of a loan applicant's gross income that would be required to make payments on the proposed loan as well as any other long-term debt the borrower may have. Car loans, installment payments of longer than 1 year, and revolving debt, such as credit card debt, are included. For example, a borrower with a monthly gross income of $10,000 applying for a loan with payments of $2,500/ month who also has a car payment of $500/month, furniture installment debt of $500/month, and credit card debt of $500/month would have a back-end ratio of 40% (in other words, the ratio of the total monthly payments of $4,000 to the gross income of $10,000). Lenders use this ratio as a rule of thumb for underwriting loans. Lenders give back-end ratios careful consideration as a measure of a borrower's tendency to take on debt.

     Different loan programs may have different back-end-ratio underwriting guidelines. Currently, typical back-end ratios acceptable to major home lenders range from 38 to 50% or more. See also front-end ratio.

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