Qualifying ratios are percentages that compare a borrower’s debt obligations to their income. Lenders use these ratios during underwriting to see if an applicant can repay a loan. Two of the most important qualifying ratios are:
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The debt-to-income (DTI) ratio, which measures all of a person’s debt payments relative to income.
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The housing expense ratio (also called front-end ratio), which compares housing-related costs (mortgage, taxes, insurance, etc.) to income.
Qualifying ratios help lenders decide not only whether to approve a loan but also how much they are willing to lend and under which terms.
