What is the back ratio for qualifying in terms of monthly income?

The back ratio, often used in qualifying for loans, refers to the percentage of a borrower's monthly income that goes toward paying debts, particularly housing costs and other installment loans. In many lending practices, such as those utilized by mortgage lenders, a common guideline for the back ratio is that it should not exceed 36% of a borrower’s gross monthly income.

The rationale behind this figure is based on ensuring that borrowers can comfortably manage their debt obligations without becoming financially overextended. Lenders typically use this benchmark to evaluate a borrower’s ability to repay loans while maintaining their other financial commitments. A back ratio of 36% reflects a balance between allowing borrowers to secure financing while also protecting them from potential financial strain. This is why 36% is the standard figure cited in most lending guidelines for back ratios when qualifying borrowers.