A borrower has gross monthly income of $8,000, a proposed total housing payment of $2,400, and other monthly debt obligations of $800. What is the back-end debt-to-income ratio?
Correct Answer
D) 40%
Why this is correct: The back-end debt-to-income (DTI) ratio is calculated by dividing the borrower's total monthly debt obligations by their gross monthly income. Total monthly obligations = housing payment ($2,400) + other debts ($800) = $3,200. Gross monthly income = $8,000. Back-end DTI = ($3,200 / $8,000) * 100% = 40%. Why the other choices are wrong: "30%" is wrong; this is the front-end ratio (housing payment only: $2,400 / $8,000 = 30%). "35%" is an incorrect calculation, possibly from using only a portion of the debts. "38%" is also an incorrect approximation. Exam tip: Back-end DTI always includes the housing payment plus all other monthly debt obligations. Front-end DTI includes only the housing payment.
Why This Is the Correct Answer
Why this is correct: The back-end debt-to-income (DTI) ratio is calculated by dividing the borrower's total monthly debt obligations by their gross monthly income. Total monthly obligations = housing payment ($2,400) + other debts ($800) = $3,200. Gross monthly income = $8,000. Back-end DTI = ($3,200 / $8,000) * 100% = 40%. Why the other choices are wrong: "30%" is wrong; this is the front-end ratio (housing payment only: $2,400 / $8,000 = 30%). "35%" is an incorrect calculation, possibly from using only a portion of the debts. "38%" is also an incorrect approximation. Exam tip: Back-end DTI always includes the housing payment plus all other monthly debt obligations. Front-end DTI includes only the housing payment.
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