Qualifying ratios are numerical measures that banks and other financial institutions use in their loan underwriting process. Lenders use qualifying ratios, percentages that compare a borrower's debt obligations to their income, in deciding whether to approve loan applications. Two main kinds of Debt-to-Income (DTI) ratios are: Front-end Ratio and Bank-end Ratio. The front-end ratio, indicates the percentage of income that goes toward housing costs, which for renters is the rent amount and for homeowners is PITI (mortgage principal and interest, mortgage insurance premium, when applicable, hazard insurance premium, property taxes, and homeowners' association dues, when applicable), while the back-end ratio, indicates the percentage of income that goes toward paying all recurring debt payments, including those covered by the first DTI, and other debts such as credit card payments, car loan payments, student loan payments, child support payments, alimony payments, and legal judgments.
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