How do you calculate back-end DTI/TOR?

How do you calculate back-end DTI/TOR?

• A. Total housing expenses (PITI) + Debt / Gross Monthly Income = Ratio %
• B. PITI / Gross Monthly Income
• C. Debt / Net Monthly Income
• D. PITI + Taxes / Gross Income

Answer: (A)

Back-end DTI, or total obligation ratio, shows how much of gross monthly income is needed to cover all monthly debt payments, including housing costs. To calculate it, add housing costs (PITI: principal, interest, taxes, insurance) to all other monthly debt payments (car loans, credit cards, student loans, alimony/child support, etc.), then divide that sum by gross monthly income. So the formula is (PITI + other monthly debt payments) / gross monthly income, expressed as a percentage. This is the correct approach because back-end DTI accounts for every recurring debt obligation, not just housing costs, and uses gross income as the basis. The other options either measure only housing costs (front-end DTI), use net income (which is not standard for DTI), or double-count taxes and omit other debts.

Back-end DTI, or total obligation ratio, shows how much of gross monthly income is needed to cover all monthly debt payments, including housing costs.

To calculate it, add housing costs (PITI: principal, interest, taxes, insurance) to all other monthly debt payments (car loans, credit cards, student loans, alimony/child support, etc.), then divide that sum by gross monthly income. So the formula is (PITI + other monthly debt payments) / gross monthly income, expressed as a percentage.

This is the correct approach because back-end DTI accounts for every recurring debt obligation, not just housing costs, and uses gross income as the basis. The other options either measure only housing costs (front-end DTI), use net income (which is not standard for DTI), or double-count taxes and omit other debts.