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Housing Expense Ratio

[b:18b8057d8e]Housing Expense Ratio[/b:18b8057d8e] or Front-End Ratio calculates how much of your gross monthly income will be used to make mortgage payment. It is evaluated as an individual's monthly housing expense or mortgage payment divided by his monthly gross income. It is expressed in terms of percentage.

To Sum up,
[quote:18b8057d8e]Housing Expense Ratio = Monthly Housing Expense / Monthly Gross Income[/quote:18b8057d8e]

Where, Housing expenses include principal, interest, real estate taxes, and homeowners insurance collectively known as PITI.

In general, your total housing expense ratio or front-end ratio should not exceed 28% of your gross income.

[b:18b8057d8e]For Example,[/b:18b8057d8e] A home-buyer makes $120,000 a year. The maximum amount of monthly mortgage-related payment at 28% of gross income would be $2,800. Thus, the homebuyer would be approved for a mortgage which requires a maximum monthly mortgage payment of $2,800.

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Housing Expense Ratio
Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

i need this for an assignment at school but i dont understand it!

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:51 | Post subject:

jerry's picture
jerry | Joined: October 17, 2005 03:24 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi haley Sytsma!

Housing expense ratio is used to calculate a person's monthly mortgage payments. These payments depend on the gross monthly income. This is also known as front end ratio.

To calculate the Housing expense ratio, you will need the following formula:
Housing Expense Ratio = Monthly Housing Expense / Monthly Gross Income

The monthly housing expense in this formula includes principal amount , real estate taxes, interest as well as the homeowners insurance. Generally it is said that the housing expense ration should not exceed 28% of a person's gross monthly income.

Thanks,

Jerry

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:51 | Post subject:

chrisburns's picture
chrisburns | Joined: November 13, 2007 07:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

very good explantion Sam.

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:51 | Post subject:

morabito's picture
morabito | Joined: August 22, 2009 12:03 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

"For Example, A home-buyer makes $1,20,000 a year. The maximum amount of monthly mortgage-related payment at 28% of gross income would be $2,800. Thus, the homebuyer would be approved for a mortgage which requires a maximum monthly mortgage payment of $2,800."

This is sort of misleading. Shouldn't the $2,800 also include PMI, insurance, and property tax???

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eric1's picture
eric1 | Joined: January 4, 2009 03:52 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Yes that payment of $2,800 SHOULD also include taxes, insurance and PMI if applicable. Meanwhile, the quote of 28% is also low. Reality is that low to mid 30's range is getting appoved every day.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

we've seen queries from folk who read some of the older posts on the site and take things from them as gospel. we've got to all continue to recognize that many of the things said here have become outdated.

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:51 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

check your math 28% of $120,000 is $33,600 not $28,000.

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:51 | Post subject:

gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Dan, we're talking about monthly payments here. Yes, your math is impeccable, but when breaking it down monthly, a payment of $2800 is 28% of monthly income of $10,000.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

what does it make for an hourly rate of $35 for full time consultant?
I am trying to understand if I am qualify for Loan modification. My housing expense is 1785 monthly. (I can make OT sometime but not certain. What certain is I don't get paid during holidays.

I was told than if the rate is > 31%, I get get 2-3% rate down for my mortgage. Of course I will not pay them up front unless they get the rate saves a few hundreds.

Thanks for advise.
Cage

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:51 | Post subject:

gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Cage, it seems you're working with these for-profit outfits that ask you to pay them up front for their help in getting you a modification. BEWARE!

You'll be wasting lots of money when they fail to come through for you, so I suggest you find a lawyer if you need one, who'll only ask for a retainer; or a non-profit organization (check HUD for one near you).

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I am working on a Loan Modification with Chase. They say the raito also include ALL expenses.

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adonis's picture
adonis | Joined: October 22, 2005 05:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Thanks for sharing the info, Richard!! :)

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