Qualifying Ratios

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).

BREAKING DOWN '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. Automated Underwriting

    A computer-generated loan underwriting decision. Using completed ...
  3. Front-End Ratio

    A ratio that indicates what portion of an individual's income ...
  4. Loan-To-Value Ratio - LTV Ratio

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

    A ratio that indicates what portion of a person's monthly income ...
  6. Credit Rating

    An assessment of the creditworthiness of a borrower in general ...
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. Credit & Loans

    5 Extreme Ways To Raise Your Credit Score

    Desperate to rebuild your credit score because you can’t obtain a loan with a decent interest rate? Here are some extreme options to try.
  5. Personal Finance

    The Top 5 Personal Finance Experts to Follow in 2016

    Here is a look at five money and investing experts who can help you reach your financial goals for 2016.
  6. Retirement

    7 Ways to Use a Strong Credit Score During Retirement

    Find out why it is important to maintain a good credit in retirement. Learn seven reasons not to leave your credit score behind when you retire.
  7. Retirement

    6 Methods to Maintain a Healthy Credit Score During Retirement

    Learn how to improve your credit score during retirement. Your credit score still matters in retirement, and these tips can give it a boost.
  8. Retirement

    8 Ways for Retirees to Improve Their Credit Score

    These simple strategies will go a long way toward helping raise a damaged credit score.
  9. Personal Finance

    10 Unfamiliar Ways to Help Pay Down Medical Bills

    Mounting medical bills can be frightening. But these out-of-the-box solutions can help you avoid ruining your credit rating when you don't pay them.
  10. Home & Auto

    5 Things You Need To Be Pre-Approved For A Mortgage

    Before you can get serious about buying a home, you need to get pre-approval for a mortgage. Learn what you need to speed up the approval process.
RELATED FAQS
  1. Do free credit reports affect your credit score?

    Free credit reports do not impact your credit score. Credit inquiries are divided into two categories: soft inquiries and ... Read Full Answer >>
  2. Does a free credit report show your credit score?

    The free credit reports available from the three credit reporting agencies do not include your credit score. Under the 2 ... Read Full Answer >>
  3. Can a Best Buy credit card help you build credit?

    A Best Buy credit card can be used to help improve your credit score and credit history as long as you use the card responsibly. ... Read Full Answer >>
  4. Are personal loans bad for your credit score?

    Taking out a personal loan is not bad for your credit score in and of itself. However, there are several factors that come ... Read Full Answer >>
  5. Can a Walmart credit card help you build credit? (WMT)

    Through Synchrony Bank, Wal-Mart Stores, Inc. (NYSE: WMT) offers two credit cards: the Walmart MasterCard and the Walmart ... Read Full Answer >>
  6. Can Sallie Mae report you to a credit bureau?

    A credit bureau, referred to primarily in the United States as a consumer reporting agency (CRA), is an entity that gathers ... Read Full Answer >>
Hot Definitions
  1. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  2. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  3. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  4. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
  5. Dark Pool Liquidity

    The trading volume created by institutional orders that are unavailable to the public. The bulk of dark pool liquidity is ...
Trading Center