The portion of a borrower's pretax income that goes toward monthly housing expenses is known as the housing expense ratio, sometimes known as the front-end ratio. An underwriter divides the borrower's housing costs by their gross income to arrive at the housing ratio.
What is the FHA's maximum ratio for housing expenses?
- The official FHA website states that you are permitted to spend 31% of your income for housing costs and 43% for those payments as well as other long-term debt. These ratios should be contrasted with the debt-to-income specifications of a typical home loan.
- FHA's required debt-to-income ratio : Although it varies depending on credit score, you must typically have a DTI of 43% or less to qualify for an FHA loan. Your back-end DTI (total monthly loan payments) should be 43% or less, and your front-end DTI (monthly mortgage payments only) should be 31% or less.
- Subtract the cost of housing from the gross monthly income : You can divide your expenses ($2,689) by your income ($1,7500) to find the housing expense ratio as an underwriter might see it. 0.358, or 35.8%, is the result, meaning that little over a third of your pretax income would be spent on housing expenses.
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