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First Time Home Buyer

Buying Your First Home: Understanding Qualifying Ratios

If you’re in the process of buying your first home, you’ve probably been encountering a lot of unfamiliar terminology.

You’ve probably heard terms like “adjustable-rate mortgage,” “zero down payment,” and “appraisal” tossed around in everyday conversation. But oftentimes, it isn’t until someone has decided to buy a home that they learn what those terms actually mean. For that reason, familiarizing yourself with real estate vocabulary can be one of the trickiest parts of the homebuying process.

“Qualifying ratios” is another esoteric term that many first-time homebuyers struggle to become acquainted with (at least at first). This is problematic, because qualifying ratios are a crucial piece of information for anyone who’s looking to buy a home.

The goal of this article, therefore, will be to provide you with a basic outline of qualifying ratios.


What Is a Qualifying Ratio?

Optimizing your qualifying ratio will be an important step towards maximizing your chances of being approved for a home loan. Like your credit score, your qualifying ratio will be scrutinized to determine whether or not you’re eligible for a loan. 

A qualifying ratio is expressed as a percentage, and it can be broken down into two basic sub-components:

  1. The housing expense ratio, which affects the loan underwriting phase of the lending process, and;
  2. The debt-to-income ratio, which affects the underwriting of personal loans and housing mortgages.


The housing expense ratio is calculated by dividing a loan applicant’s housing expenses by their gross income. The debt-to-income ratio, in contrast, is calculated by dividing an applicant’s total expenses by their gross income.


What Is the Ideal Qualifying Ratio for First-Time Homebuyers?

What housing expense ratio and debt-to-income ratio should aspiring homeowners aim for in order to receive a housing loan?

The first important detail to understand, here, is that ideal ratios will vary slightly depending on your lender. Some mortgage lenders will have more stringent qualifying requirements, and others will be a bit more lenient. 

Generally speaking, however, these are the maximum ratios that you should be aiming for as an aspiring homeowner in 2021:

  1. A maximum housing expense ratio of 28%
  2. A maximum debt-to-income ratio of 36%


Contact Us Today to Learn More About Buying Your First Home

Are you curious to learn more about the basics of qualifying ratios and how they’ll affect your mortgage loan application? The expert lenders at Mortgage Solutions Financial have you covered! Contact our office today to find out everything that you’ll need to know to start simplifying your loan application process!