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# Housing Expense Ratio

Posted on: 30th Jun, 2004 02:25 am
Housing Expense Ratio 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,
"Housing Expense Ratio = Monthly Housing Expense / Monthly Gross Income"

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.

For Example, 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.
meta title:
Housing Expense Ratio
i need this for an assignment at school but i dont understand it!
Posted on: 24th Oct, 2008 10:11 am
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
Posted on: 25th Oct, 2008 02:08 am
very good explantion Sam.
Posted on: 10th Nov, 2008 05:48 am
"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???
Posted on: 03rd Dec, 2009 10:07 am
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.
Posted on: 04th Dec, 2009 10:21 am
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.
Posted on: 04th Dec, 2009 02:50 pm
check your math 28% of \$120,000 is \$33,600 not \$28,000.
Posted on: 14th Jul, 2010 04:53 pm
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.
Posted on: 15th Jul, 2010 09:41 am
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.