Housing Expense Ratio
Candlefocus EditorBy dividing the total housing expenses (mortgage and related costs) by the borrower’s income, financial institutes are able to get a clear understanding of the borrower’s financial standing. Generally, the lender will look for a housing expense ratio of 36% or less before approving a mortgage loan. A ratio higher than this can indicate that the borrower is overextending themselves and may be unable to make on-time payments or have difficulty trying to cover other expenses.
Income ratios can be difficult for those with excellent credit to meet, however the presence of a co-borrower, such as a spouse or family member, can heavily reduce the housing expense ratio and make it much easier to achieve the necessary ratio. This is because the combined incomes of two borrowers can provide more financial room and be more reassuring to lenders.
It is important to note that securing a good housing expense ratio is essential to getting approved for a mortgage loan and may be critical to help you secure the loan of your dreams. It is essential to understand the complexities of housing expense ratios before considering any real estate transaction.