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Qualifying Ratios

What is '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).

Explaining '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.


Further Reading


A financial ratio analysis of commercial bank performance in South Africa
www.ajol.info [PDF]
… increased by 20% during 2009 as banks increased their investments in instruments qualifying as liquid … The loan portfolio deteriorated in 2008-2009 as the ratio increased by 8 .33% from 1 … Credit risk ratios increased during 2008 indicating the deterioration of the quality of the …

A Degree of Practical Wisdom: The Ratio of Educational Debt to Income as a Basic Measurement of Law School Graduates' Economic ViabilityA Degree of Practical Wisdom: The Ratio of Educational Debt to Income as a Basic Measurement of Law School Graduates' Economic Viability
heinonline.org [PDF]
… increased by 20% during 2009 as banks increased their investments in instruments qualifying as liquid … The loan portfolio deteriorated in 2008-2009 as the ratio increased by 8 .33% from 1 … Credit risk ratios increased during 2008 indicating the deterioration of the quality of the …

Qualifying for a Home Mortgage in Today's Mortgage Environment.Qualifying for a Home Mortgage in Today's Mortgage Environment.
search.ebscohost.com [PDF]
… increased by 20% during 2009 as banks increased their investments in instruments qualifying as liquid … The loan portfolio deteriorated in 2008-2009 as the ratio increased by 8 .33% from 1 … Credit risk ratios increased during 2008 indicating the deterioration of the quality of the …

Taxation and the optimal constraint on corporate debt finance: why a comprehensive business income tax is suboptimalTaxation and the optimal constraint on corporate debt finance: why a comprehensive business income tax is suboptimal
link.springer.com [PDF]
… increased by 20% during 2009 as banks increased their investments in instruments qualifying as liquid … The loan portfolio deteriorated in 2008-2009 as the ratio increased by 8 .33% from 1 … Credit risk ratios increased during 2008 indicating the deterioration of the quality of the …

Prediction of Greek company takeovers via multivariate analysis of financial ratiosPrediction of Greek company takeovers via multivariate analysis of financial ratios
www.tandfonline.com [PDF]
… increased by 20% during 2009 as banks increased their investments in instruments qualifying as liquid … The loan portfolio deteriorated in 2008-2009 as the ratio increased by 8 .33% from 1 … Credit risk ratios increased during 2008 indicating the deterioration of the quality of the …

Dividend policies and dividend announcement effects for real estate investment trustsDividend policies and dividend announcement effects for real estate investment trusts
onlinelibrary.wiley.com [PDF]
… increased by 20% during 2009 as banks increased their investments in instruments qualifying as liquid … The loan portfolio deteriorated in 2008-2009 as the ratio increased by 8 .33% from 1 … Credit risk ratios increased during 2008 indicating the deterioration of the quality of the …

How investors perceive financial ratios at different growth opportunities and financial leveragesHow investors perceive financial ratios at different growth opportunities and financial leverages
search.proquest.com [PDF]
… increased by 20% during 2009 as banks increased their investments in instruments qualifying as liquid … The loan portfolio deteriorated in 2008-2009 as the ratio increased by 8 .33% from 1 … Credit risk ratios increased during 2008 indicating the deterioration of the quality of the …

Does flexibility hinder financial regulation? The case of CRA enforcement in the USADoes flexibility hinder financial regulation? The case of CRA enforcement in the USA
www.emerald.com [PDF]
… increased by 20% during 2009 as banks increased their investments in instruments qualifying as liquid … The loan portfolio deteriorated in 2008-2009 as the ratio increased by 8 .33% from 1 … Credit risk ratios increased during 2008 indicating the deterioration of the quality of the …

Debt-servicing and economic growth in KenyaDebt-servicing and economic growth in Kenya
erepository.uonbi.ac.ke [PDF]
… increased by 20% during 2009 as banks increased their investments in instruments qualifying as liquid … The loan portfolio deteriorated in 2008-2009 as the ratio increased by 8 .33% from 1 … Credit risk ratios increased during 2008 indicating the deterioration of the quality of the …


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