What are the two calculations used to determine if a borrower can qualify for a mortgage?

What are the two calculations used to determine if a borrower can qualify for a mortgage?

• A. Debt-to-Income Ratio and Housing Expense Ratio
• B. Credit Score and Employment History
• C. Income Verification and Asset Evaluation
• D. Monthly Payments and Loan Amount

Answer: (A)

The two calculations used to determine if a borrower can qualify for a mortgage are the Debt-to-Income Ratio and the Housing Expense Ratio. These ratios play a crucial role in assessing a borrower's financial health and ability to repay a loan. The Debt-to-Income Ratio (DTI) measures the percentage of a borrower’s gross monthly income that goes towards monthly debt payments, including the mortgage payment, credit cards, car loans, and other obligations. Lenders typically look for a DTI below a certain threshold, usually around 43%, to ensure that borrowers are not overwhelmed by debt and can comfortably manage their mortgage payments. The Housing Expense Ratio, often called the Front-End Ratio, focuses specifically on the proportion of a borrower’s income that is spent on housing-related expenses. This includes the mortgage payment (principal and interest), property taxes, homeowners insurance, and any applicable homeowner association fees. A common guideline is that this ratio should not exceed 28-31% of the borrower’s gross monthly income, further indicating that the borrower can afford their housing costs. These calculations provide lenders with essential insights into a borrower's financial capacity, enabling them to make informed lending decisions based on risk assessment. Other options provided, while relevant to the mortgage application process, do

The two calculations used to determine if a borrower can qualify for a mortgage are the Debt-to-Income Ratio and the Housing Expense Ratio. These ratios play a crucial role in assessing a borrower's financial health and ability to repay a loan.

The Debt-to-Income Ratio (DTI) measures the percentage of a borrower’s gross monthly income that goes towards monthly debt payments, including the mortgage payment, credit cards, car loans, and other obligations. Lenders typically look for a DTI below a certain threshold, usually around 43%, to ensure that borrowers are not overwhelmed by debt and can comfortably manage their mortgage payments.

The Housing Expense Ratio, often called the Front-End Ratio, focuses specifically on the proportion of a borrower’s income that is spent on housing-related expenses. This includes the mortgage payment (principal and interest), property taxes, homeowners insurance, and any applicable homeowner association fees. A common guideline is that this ratio should not exceed 28-31% of the borrower’s gross monthly income, further indicating that the borrower can afford their housing costs.

These calculations provide lenders with essential insights into a borrower's financial capacity, enabling them to make informed lending decisions based on risk assessment. Other options provided, while relevant to the mortgage application process, do