What should the housing expense ratio not exceed?

The housing expense ratio, often referred to as the front-end ratio, is a guideline used primarily by lenders to determine a borrower's ability to manage monthly housing payments. This ratio calculates the percentage of your gross income that would go towards housing costs, which typically include mortgage payments, property taxes, homeowners insurance, and any mortgage insurance.

The common standard for the housing expense ratio is that it should not exceed 28% of a borrower's gross monthly income. This threshold allows borrowers to maintain a healthy balance between their housing expenses and other financial obligations, minimizing the risk of financial strain or default. Adhering to this guideline helps ensure that the borrower can comfortably afford their home without sacrificing other necessary living expenses.

While different lenders may have varying criteria or may consider other factors in their assessment, the 28% rule is widely recognized as a foundational guideline in the industry. When borrowers adhere to this standard, it not only helps them maintain financial stability but also positions them favorably when seeking approval from lenders.