Qualifying Ratio

A qualifying ratio is a financial measurement used by lenders to evaluate a borrower’s ability to manage debt payments. It compares a person’s income to their total debts and is essential for determining loan eligibility. Two main types of qualifying ratios are the front-end ratio, which focuses on housing expenses relative to income, and the back-end ratio, which includes all monthly debt obligations. These ratios help lenders assess if the borrower can afford new credit without undue financial strain, ensuring responsible lending practices.