What are investor-specific calculations to determine a borrower's eligibility for a mortgage called?

What are investor-specific calculations to determine a borrower's eligibility for a mortgage called?

• A. Debt to Income Ratio
• B. Qualifying Ratios
• C. Credit Scoring
• D. Affordability Index

Answer: (B)

The investor-specific calculations used to determine a borrower's eligibility for a mortgage are referred to as qualifying ratios. These ratios evaluate the borrower's financial situation, primarily focusing on their income relative to their debt obligations. Qualifying ratios help lenders assess the risk associated with lending money to a borrower; it allows them to determine if the borrower can comfortably manage monthly mortgage payments along with other existing debts. Typically, qualifying ratios include two main measures: the front-end ratio, which looks at the percentage of a borrower’s income that goes towards housing costs, and the back-end ratio, which analyzes total monthly debt payments as a proportion of income. Understanding these ratios is critical for lenders because they need to ensure that borrowers will not face financial hardship when taking on a new mortgage. Investors utilize these calculations to set benchmarks for risk assessment and to approve or decline mortgage applications based on the likelihood of repayment. Other choices refer to related concepts but do not specifically encapsulate the investor-specific calculations for mortgage eligibility in the same way that qualifying ratios do.

The investor-specific calculations used to determine a borrower's eligibility for a mortgage are referred to as qualifying ratios. These ratios evaluate the borrower's financial situation, primarily focusing on their income relative to their debt obligations. Qualifying ratios help lenders assess the risk associated with lending money to a borrower; it allows them to determine if the borrower can comfortably manage monthly mortgage payments along with other existing debts.

Typically, qualifying ratios include two main measures: the front-end ratio, which looks at the percentage of a borrower’s income that goes towards housing costs, and the back-end ratio, which analyzes total monthly debt payments as a proportion of income.

Understanding these ratios is critical for lenders because they need to ensure that borrowers will not face financial hardship when taking on a new mortgage. Investors utilize these calculations to set benchmarks for risk assessment and to approve or decline mortgage applications based on the likelihood of repayment.

Other choices refer to related concepts but do not specifically encapsulate the investor-specific calculations for mortgage eligibility in the same way that qualifying ratios do.