What ratio do lenders use to qualify someone for a home loan?

• A. Loan-to-value ratio.
• B. Debt-to-income ratio.
• C. Credit utilization ratio.
• D. Debt-to-income ratio is not used.

Answer: (B)

Debt-to-income ratio is the main measure lenders use to judge whether you can afford a mortgage payment given your other debts. It compares your total monthly debt payments to your gross monthly income, with typical underwriting targets around the low to mid 40s percent depending on the loan. This focuses on your cash flow and ability to manage the new payment each month. In contrast, a loan-to-value ratio looks at the loan amount relative to the property's value and affects down payment requirements and risk, not your monthly ability to pay. The credit utilization ratio relates to how much of your available credit you’re using and influences your credit score, not the immediate mortgage qualification. So the ratio used to qualify for a home loan is debt-to-income ratio.