QWhat Is The Qualifying Ratio Of Income To Debt That Lenders Consider In Making A Loan?
AMost lenders require that your mortgage, property insurance premium, and property tax payments (PITI) absorb 28 percent to 36 percent of your gross monthly income. This qualifying ratio is called the "housing expense ratio" or the "front ratio." Lenders often require that PITI plus other long-term debts, such as car payments or student loans, take no more than 36 percent to 38 percent of your gross monthly income. This second requirement is called the "long-term debt ratio" or the "back ratio." To handle credit card payments, the lender often divides your outstanding balance by 18, the number of months a lender assumes it will take you to pay off the balance. These two qualifying ratios yield two "maximum allowable PITI" figures. Your allowable PITI is restricted to the smaller of the two numbers.