What are Qualifying Ratios?
Sunday, July 17th, 2005Part of the process of qualifying for a mortgage is the analysis of your debt-to-income ratios. Clients are often confused as to what this means and how these ratios are determined. These ratios are used by underwriters in determining an individual(s) credit worthiness for a mortgage loan. It is important that you and your loan officer work to maintain your financial profile from the time of application until you are cleared to close.
The first or top ratio is the borrower’s monthly housing costs to monthly income. The second or bottom ratio is all of the borrower’s monthly debt to monthly income. Underwriters then compare these ratios to the established guidelines within the industry. For a standard conventional mortgage loan, your ratios should range between 28 to 36. For some expanded programs, ratios can range between 33 to 40.
When you go to apply for a mortgage, your loan officer should not only tell you what your ratios are but give you the maximum ratios allowed for the loan program for which you are applying. Changes in your financial picture, interest rates, etc. can impact your qualifying process. Working with your loan officer to maintain and/or enhance your profile during the processing of your loan ensures a smooth transaction and a succesful close.