Qualification Ratios: How Do They Figure These Ratios, Anyway?
If you've ever brought up the subject of getting a loan for any type of major purchase, you've probably heard the phrase "how much do you qualify for?" or "we'll need to get you qualified for a loan". When it comes to your mortgage, qualification ratios may seem like something from your high school calculus class. It's actually not rocket science. The math is simple, and the concept is sound. Here's the simple breakdown of how qualification of loanability is considered. Debt to Income Ratio Income Ratio is your total monthly housing payment as a percentage of your gross monthly income. Your total housing payment consists of principal, interest, property taxes, hazard insurance, mortgage insurance (if applicable) and any condo/co-op or association fees. Debt Ratio is your total monthly housing payment plus any recurring monthly debts as a percentage of your gross monthly income. Other debts include all other payments such as cars, credit ...