The housing expense ratio is a financial tool used by lenders to determine whether a borrower can afford a home.
It compares a person’s gross monthly income (before taxes) to their monthly housing expenses, which typically include mortgage payments, property taxes, homeowners insurance, and sometimes homeowners association fees.
Most lenders prefer this ratio to be no more than 28%, meaning housing costs should not exceed 28% of the borrower’s gross monthly income. A higher ratio may still be acceptable if the borrower has an excellent credit score, significant savings, or a co-borrower with additional income.
This ratio helps assess financial stability and loan eligibility.