Housing Expense Ratio

DEFINITION of 'Housing Expense Ratio'

A ratio comparing housing expenses to before-tax income that is used by lenders to qualify borrowers for a mortgage. The housing expense measure includes mortgage principal, interest payments, property taxes, hazard insurance, mortgage insurance and association fees. The limit is generally 28%.

It is sometimes referred to as the "front ratio".

BREAKING DOWN 'Housing Expense Ratio'

A housing expense ratio higher than the standard 28% may be acceptable to lenders based on compensating factors such as a low loan-to-value ratio and/or an excellent credit history. In addition, applying jointly with a co-borrower can lower a housing expense ratio, as can choosing certain mortgage products with initial low payments. However, some of these perks can add up to big debt later, so buyers should be wary.

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