What are qualifying ratios and how do mortgage lenders use them?
A qualifying ratio is a measurement that mortgage lenders use to help decide if you qualify for the loans they offer. The qualifying ratio consists of 2 subcomponents; the housing expense ratio, which is made up of monthly principal, interest, property taxes, and insurance payments (PITI); and the debt-to-income ratio (DTI). Most lenders prefer you to spend no more than 28% of your gross monthly income on PITI payments (the housing expense ratio), and spend no more than 36% of your gross monthly income paying your total debt (the debt-to-income ratio). For this reason, the qualifying ratio may be referred to as the 28/36 rule.
Related terms: PITI, Debt-to-income ratio (DTI)