Qualifying Ratios

AAA

DEFINITION of 'Qualifying Ratios'

A set of ratios that are used by lenders to approve borrowers for a mortgage. The borrower's front-end ratio, which is the total housing expense compared to the borrower's gross monthly income, is compared to the borrower's back-end ratio, which comprises of the total housing expense and other consumer debt compared to the borrower's gross monthly income. The front-end ratio is generally limited to a maximum of 28% and the back-end ratio is generally limited to 35%. However, both ratios change with market conditions and may be influenced by other risk factors (such as the loan-to-value ratio of the mortgage).

INVESTOPEDIA EXPLAINS 'Qualifying Ratios'

Qualifying ratios can vary from lender to lender, from loan program to loan program or from changing market conditions. If one or both of the qualifying ratios exceed the maximum, loan underwriters might look for "compensating factors" such as a high FICO score and/or a low loan-to-value ratio to offset the risk of high qualifying ratios in order to approve and underwrite a mortgage.

RELATED TERMS
  1. Housing Expense Ratio

    A ratio comparing housing expenses to before-tax income that ...
  2. Loan-To-Value Ratio - LTV Ratio

    A lending risk assessment ratio that financial institutions and ...
  3. Back-End Ratio

    A ratio that indicates what portion of a person's monthly income ...
  4. Front-End Ratio

    A ratio that indicates what portion of an individual's income ...
  5. Automated Underwriting

    A computer-generated loan underwriting decision. Using completed ...
  6. Balance-To-Limit Ratio

    The amount of money you owe on your credit cards compared to ...
Related Articles
  1. Credit & Loans

    4 Steps To Attaining A Mortgage

    It starts with knowing your choices as well as your price range. We show you how to get there.
  2. Personal Finance

    Understanding Your Mortgage

    We walk through the steps needed to secure the best loan to finance the purchase of your home.
  3. Budgeting

    Mortgages: How Much Can You Afford?

    Answering this means number-crunching as well as factoring in other considerations and expenses.
  4. Personal Finance

    Looking To Clear Up Your Credit Report?

    If you look at your credit report you might see any number of various items that are harmful to your credit score, but you can learn how to remove them.
  5. Personal Finance

    How To Find A Job With Poor Credit?

    It's not legal for an employer to refuse to hire you for having bad credit, but he doesn't have to say that you weren't hired because of your bankruptcy.
  6. Credit & Loans

    5 Top Credit Karma Tools To Keep Your Credit High

    As if the free, no-strings credit checkup weren't enough, this site also gives you personalized feedback to make you a better money manager.
  7. Credit & Loans

    How Bad Is My Credit Score?

    You've seen the number, but what does it mean? Here's how to assess your credit score and get to a better place if needed.
  8. Personal Finance

    Understanding Credit

    Credit has three common meanings in the financial world.
  9. Credit & Loans

    Why Credit Karma Is Free & How It Makes Money

    Credit scores originally were built for lenders, but now Credit Karma makes the system work for consumers, too – and makes money at it.
  10. Credit & Loans

    How High Is A 'Good' Credit Score?

    How high a credit score do you need to get a home mortgage or buy a car? Read on for some actual numbers.

You May Also Like

Hot Definitions
  1. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  2. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  3. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  4. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  5. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  6. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
Trading Center