when it comes to consumer financing the debt to income ratio and the housing expense ratio are two of the most common and significant qualifying ratios standard credit products personal loans credit cards will focus on a borrower s debt to income ratio mortgage loans will use both the housing expense ratio and the debt to income ratio 
online lenders and credit card issuers often use computer algorhythms in their underwriting process this automated system often lets loan applications be approved in minutes qualifying ratios in personal loansin the underwriting process for all types of personal loans and credit cards the lender will focus on two factors the borrower s debt to income ratio and their credit score the two are usually given equal weight the debt to income ratio dti which may be calculated monthly or annually considers a borrower s current regular debt obligations against their total or gross income comparing how much they have outgoing vis a vis the regular amount they have coming in over the same period to obtain the ratio you divide the outstanding debt payments by the total income or as a formula assuming the more common monthly calculation image by sabrina jiang investopedia 2021while each lender has its own specified parameters for loan approval high quality lenders generally will require a debt to income ratio of approximately 36 or less subprime and other alternative financing lenders may allow for debt to income ratios of up to approximately 43 qualifying ratios in mortgage loansmortgage loan underwriting analyzes two types of ratios along with a borrower s credit score mortgage lenders will look at a borrower s housing expense ratio they will also consider a borrower s debt to income ratio in mortgage financing the housing expense ratio is also referred to as as the front end ratio while the debt to income ratio is often known as the back end ratio the housing expense ratio is generally a comparison of the borrower s total housing related expenses to their gross or pre tax income lenders have numerous expenses that they may consider when determining an applicant s overall housing expense ratio they usually focus on the mortgage principal and interest payments however they may also look at other regular costs such as homeowners and hazard insurance utility bills property taxes homeowners association fees and mortgage insurance the sum of these housing expenses is then divided by the borrower s income to arrive at the housing expense ratio the figures can be calculated using monthly payments or annual payments underwriters use the housing expense ratio not only to grant approval for the mortgage but also to determine how much principal an applicant is eligible to borrow most lenders typically require a housing expense ratio to be approximately 28 or less a higher housing expense ratio may be acceptable based on compensating factors such as a low loan to value ratio for the property and or an excellent credit history for the borrower the realities of the local real estate market may play a part too in expensive regions such as new york city or san francisco it s not unusual for housing expenses to total one third of people s income the debt to income ratio in mortgage loans is the same measure used in personal loan products lenders generally also look for a debt to income ratio of 36 for mortgage loans as well some government sponsored loan programs may have looser standards for debt to income fannie mae accepts debt to income ratios of approximately 45 for the mortgages it backs and federal housing administration loans accepts debt to income ratios of approximately 50 