What Are Qualifying Points?

Mortgage lenders use qualifying points to decide if a borrower qualifies for a loan. Qualifying points consist of two components: housing expenses and debt-to-income ratio (DTI). Housing expenses can be utility bills, property taxes, or insurance while DTI calculates the percentage of a borrower’s monthly income used to pay monthly debt.

The housing expense and DTI ratio demonstrate the amount of the borrower’s income going towards current debt. Mortgage lenders prefer the 28/36 rule– 36% of the monthly income going towards the DTI ratio and 28% going towards housing debt. Mortgage lenders will evaluate your qualifying ratios and credit score when considering and offering a home loan.

A borrower’s qualifying points heavily influence the likelihood of being approved for a home loan. Underwriters use the housing expense and the current debt of the borrower to both approve their mortgage application and determine how much principal they may be eligible to borrow. Improving your qualifying ratios– such as pinpointing areas to cut back on spending, paying more than the minimum, paying off debts, etc. —can increase your chances of being approved for a mortgage.

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