The Lengths to Which Mortgage Lenders Will Go
Tip It!I learned something interesting today… If your credit is good enough, some mortgage lenders will approve mortgages that bring you up to a 50% back-end ratio. In case you’re wondering what that means, your front-end ratio is your total monthly mortgage payment vs. you gross monthly income, whereas your back-end ratio is your total monthly debt obligations vs. gross monthly income. Is it just me, or is that an insane amount of debt to be carrying? Crazy stuff.
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Published on April 4th, 2006 - 7 Comments
Filed under: Mortgages
About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!
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7 Responses to “The Lengths to Which Mortgage Lenders Will Go”
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April 4th, 2006 at 8:06 am
Yeah, that is an insane amount of debt.
April 4th, 2006 at 8:30 am
Or just very little income. LOL.
April 4th, 2006 at 8:59 am
But what if your mortgage is your only debt so that your front-end ratio is very close to your back-end ratio? In that case, is it acceptable to have a 50% ratio if all 50% is so-called “good debt” (vs. bad debt like credit cards, car loans, etc.)?
I wouldn’t mind finding a lender who would give me a 50% back-end ratio. Then I might actually be able to afford a house around here!
April 4th, 2006 at 11:13 am
Nick, you’re right. 50% front-end ratio would make you house poor. That would be just as bad as a 50% back-end ratio. Ours is nowhere near those..
April 4th, 2006 at 1:55 pm
I can think of one possible legitimate reason for doing that. If the income that you can document to the bank’s satisfaction, such as a salary, is the basis for the 50% back-end ratio, but it is not your entire income, it might make sense. If you have substantial income from investments, but it is not reliable enough to satisfy the lender, your actual bank-end ratio may be well below 50%. That is the only reason I would even consider taking on a mortgage like that.
April 10th, 2007 at 2:10 pm
So many people think that just because you they get approved for something (mortgage, car, etc) they must be able to afford it.
January 14th, 2010 at 9:04 am
Hence the Mortgage Meltdown and Credit Crisis