Question:

What exactly is Total Housing Expense ratio and how to calculate it?

Answer:

The Total Housing Expense in percentage is in fact the back-end debt-to-income (DTI) ratio used by underwriters to qualify a borrower for a particular mortgage loan.

The Total Housing Expense is calculated as the sum of the full expected PITI payment plus any other recurring monthly obligations a borrower needs to take care of such as a car loan, credit cards, alimonies, etc.

The PITI payment includes mortgage principal, interest, taxes and insurance.

How to calculate my total housing expense ratio?

For example, the Total Housing Expense for someone with monthly gross income of $4200 and expected PITI payment of $1200, credit cards payment of $450, and a car loan payment of $600/month is calculated by summing up (1200 + 450 + 900) = 2250 and dividing 2250 by 4200, which makes for around 53.5% Total Housing Expense ratio.

The ratio calculated above may or may not qualify you for the desired loan amount, depending on lender and mortgage loan program. It is desirable for most mortgage lending programs that the total housing expense ratio for most borrowers doesn't exceed 56%. However, sometimes low LTV and great credit and cash reserves may allow for borrowers with higher total housing expense ratio to be underwritten successfully.

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