Question:

What is housing expense ratio?

Answer:

The housing expense ratio is the ratio between housing expenses and gross income. Housing expenses usually include the PITI payment and other housing expense fees, if any. This housing expense ratio is preferred to be 28% or lower, but the total housing expense ratio may be 38%, depending on the loan program. The housing expense ratio is obtained by dividing housing expenses by the before-tax income of the borrower.

If you have higher housing expense ratio, but excellent credit, lenders assume you are able to handle your finances well, and may qualify you for the desired loan amount.

The housing expense ratio is also known as front end or top ratio.

The total housing expense ratio cannot exceed 56%. It includes all possible monthly payments a borrower makes - mortgages, equity loans, car loans, credit cards, etc.

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