Qualification Ratio

DEFINITION of 'Qualification Ratio'

Ratio of debt to income and housing expense to income that is used by mortgage lenders to determine a borrower's credit-worthiness for certain loan amounts. Generally, a borrower's debt-to-income ratio, which includes housing expenses plus long-term debt, cannot exceed 36% of the person's monthly gross income. Housing expenses alone, which include home owner's insurance, taxes, condominium fees, homeowner's fees, etc. cannot exceed 28% of a borrower's monthly gross income.

BREAKING DOWN 'Qualification Ratio'

Mortgage programs are available for borrowers who do not meet the standard qualifying ratios, but the added risk of default by the borrower means that such mortgages generally carry higher interest rates than mortgages where the standard qualifying ratios are met.

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RELATED FAQS
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    Borrowing through the Federal Housing Administration requires individuals to provide proof of income as well as information ... Read Answer >>
  2. What's considered to be a good debt-to-income (DTI) ratio?

    Your debt-to-income ratio helps lenders determine your credit worthiness. Find out how to calculate your score and whether ... Read Answer >>
  3. How does my debt-to-income (DTI) ratio affect my ability to get a mortgage?

    Find out how much your debt-to-income ratio affects your ability to get a good mortgage rate when buying a home. Read Answer >>
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  6. What counts as "debts" and "income" when calculating my debt-to-income (DTI) ratio?

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