What key risk factor do underwriters evaluate when approving a mortgage?

The debt-to-income (DTI) ratio is a crucial risk factor that underwriters evaluate when approving a mortgage. This financial metric measures the proportion of a borrower's monthly income that goes toward paying debts, including the proposed mortgage payment. A lower DTI ratio indicates that the borrower has a manageable level of debt relative to their income, which suggests that they are more likely to afford their monthly mortgage payments and less likely to default on the loan. Underwriters use this information to assess the borrower's financial stability and ability to handle additional debt, thereby minimizing risk for the lender.

While the borrower's credit score can indicate their creditworthiness and past repayment behavior, and employment history can provide insights into job stability, the DTI ratio directly reflects the borrower's current financial situation and monthly obligations. Together with other factors, the DTI ratio plays a vital role in the comprehensive assessment of a borrower’s financial profile.