How is a non-borrowing household member's debt treated when calculating overall ratios?

When calculating overall ratios for mortgage applications, a non-borrowing household member's debt is treated by adding it to the borrowing member's liabilities. This approach acknowledges that the non-borrower's financial obligations can still impact the household's overall financial health and ability to manage debt. Including this debt in the calculation provides a more accurate picture of the household's financial situation, as it reflects the total liabilities the household is responsible for, regardless of whether all members are borrowing.

In lending assessments, financial institutions strive to gauge both the individual and collective financial status of all household members. By incorporating the debt of non-borrowing members, lenders can ensure that they are not underestimating the financial strain on the borrowing member, leading to a better-informed decision about loan eligibility and offerings.

On the other hand, ignoring the debts of non-borrowing members or assessing them in a limited manner, such as counting only a portion or contingent on income criteria, would misrepresent the financial responsibilities that the borrowing member may need to account for. Thus, the most comprehensive and prudent approach is to add those debts to the liabilities of the borrowing member.