What does Qualifying Ration mean?
Qualifying Ratio is a standard measure used by lenders in order to calculate whether you are eligible to receive the loan. Based on a formula taking into consideration your monthly income and all other incurring expenses you have to support from that income, you will be accepted or denied the loan. There is a certain risk factor for the lender too, when considering you eligible for the respective loan. The debt to income ratio if calculated and found too high, you will be most probably rejected the loan, or redirected towards contracting a smaller in value loan.
Taken the most popular ratio asked by lender in general of 28/36, if you have an annual income of say $50,000, the ratio is being calculated as follows. Your monthly income in this case is of $4166 (50,000/12); 4166 multiplied by 0.28 will give $1166 which is the sum allowed for housing expenses and you will have $1499 allowed for expenses+ recurring debt (if monthly income is multiplied by the value 0.36). Criteria differ from one lender to the other, but most often you will find the qualifying ratio is a standard measure utilized by lenders.