Mortgage Qualifying Ratio

Definition - What does Mortgage Qualifying Ratio mean?

A mortgage qualifying ratio is an equation which is used to determine the amount of debt a potential borrower has already and how much they earn as well as their overall repayment ability in order to determine whether or not the person has the ability to pay for the new loan. The qualifying ratio is set by federal standard and can be slightly changed from lender to lender, but is always determined that a person cannot have more than a certain amount of debt above what they have to live on or pay their daily expenses with.

Justipedia explains Mortgage Qualifying Ratio

There are several factors in a mortgage qualifying ratio including a person's time on the job, security in the job, whether they defaulted on any previous loan, if they are already refinanced, and how many incomes are in the picture (i.e. if the applicant is married with 2 incomes accessible or if there is only one income). Any loan that is made to a person that does not have a qualifying mortgage ratio would be deemed irresponsible lending and in practice could be quashed by court order.

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