A Guide To The Housing Expense Ratio

Your housing expense ratio, also known as the house-to-income or housing ratio, is a useful indicator to see how much you can afford on a house. Your lender will use it while underwriting your mortgage. This handy guide will lay out what a housing expense ratio is, how to calculate it and what it means for you.

What Is The Housing Ratio?

The housing expense ratio, also called the front-end ratio, is a percentage determined by dividing the borrower’s housing expenses by their gross income. At its most basic, it’s a simple number showing how much of your income goes to paying for housing, and considers your mortgage payment, insurance, taxes and more. Mortgage lenders use this ratio to help determine whether a home buyer qualifies for a mortgage loan.

Lenders frequently use the housing expense ratio in conjunction with the debt-to-income ratio (DTI). Your DTI incorporates your housing expense and your additional debt obligations, such as car and student loans, to determine how much of your monthly income is committed to your total debt obligations. DTI helps lenders see how much you spend on monthly debts versus how much money you have coming into your home.

Both of these formulas give lenders a better view of your financial situation beyond your credit score or debt payment history.