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| Each letter will take you to a list of financial terms and their meaning. |
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Qualifying Ratio
The ratio of the borrowers fixed monthly expenses to his gross monthly income. They are expressed as two numbers such as 28/36 where 28 would be the Front-End Ratio and 36 would be the Back-End Ratio.
Front-End Ratio: percentage of a borrowers gross monthly income (previous to income taxes) that would cover the cost of PITI. Regarding a 28% Front-End Ratio a borrower could qualify if the proposed monthly PITI payments were 28% or less than the borrower's gross monthly income.
Back-End Ratio: percentage of a borrowers gross monthly income that would cover the cost of PITI in addition to any other monthly debt payments such as car or personal loans and credit card debt.
Please bear in mind that qualifying ratios are merely a rough guideline in determining a potential borrower's credit-worthiness. There are other factors such as excellent or poor credit history, amount of down payment, and size of loan that influences the lender’s decision regarding approval or disapproval of a particular loan. Borrowers should discuss their particular situation with their chosen lender regardless of the outcome of any self-qualification exercise.
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