The debt-to-income ratios lenders compute

Debt-to-income is a capacity test that uses income as the denominator rather than collateral. Track 9 lesson 1's maintenance test compares a balance with a permitted balance: two numbers, one inequality, no judgment about the person. A lender's housing test is the same shape on a different pair. Front-end is the housing payment divided by monthly gross income. Back-end is housing plus other debts, divided by the same income.

Cairn Street Lending reads monthly gross income of $6,840. Housing payment $2,140. Front-end is $2,140 ÷ $6,840 = 31.3 percent. Other debts are $640 + $285 + $190 = $1,115. Back-end is ($2,140 + $1,115) ÷ $6,840 = $3,255 ÷ $6,840 = 47.6 percent. One income. Two numerators. Two ratios.

The housing figure in the numerator is the PITI the lender is writing, lesson 1's four-part sum, not the PI line alone. Other debts are installments already on the file: a car, a student loan, a revolving minimum, whatever the underwriting stack includes. Neither ratio asks whether the house is cheap. Both ask whether this income, as the lender counts it, covers this stack, as the lender counts it.

Track 9 lesson 1 does not evaluate whether a decline looks temporary. Debt-to-income does not evaluate whether next year's income will be higher. The test is the two numbers on the day they are compared. Lesson 17 holds the front-end still and moves the back-end, so the two ratios cannot be treated as one capacity.

Capacity on a house is tested against income as well as against the house. The income test is two ratios, because the numerator can be housing or housing-plus.