What is the term for the percentage of your gross monthly income used to cover housing expenses?

What is the term for the percentage of your gross monthly income used to cover housing expenses?

• A. Debt-to-income ratio
• B. Housing expense ratio
• C. Loan-to-value ratio
• D. Income-to-debt ratio

Answer: (B)

The correct term for the percentage of your gross monthly income used to cover housing expenses is the housing expense ratio. This ratio specifically focuses on the portion of your income that goes toward housing costs, including mortgage payments, property taxes, homeowner's insurance, and sometimes homeowners association fees. It is an important measure for lenders assessing a borrower's ability to manage monthly housing costs relative to their income. Typically, lenders prefer this ratio to be kept below a certain percentage to ensure borrowers are not over-leveraging themselves with housing expenses. The other terms serve different purposes: the debt-to-income ratio looks at total monthly debt obligations compared to income, while the loan-to-value ratio evaluates the loan amount against the appraised value of the property. The income-to-debt ratio is not a standard term used in mortgage lending. Understanding the housing expense ratio helps homebuyers and borrowers grasp how much of their income is allocated to housing and aids in budgeting for a sustainable financial future.

The correct term for the percentage of your gross monthly income used to cover housing expenses is the housing expense ratio. This ratio specifically focuses on the portion of your income that goes toward housing costs, including mortgage payments, property taxes, homeowner's insurance, and sometimes homeowners association fees. It is an important measure for lenders assessing a borrower's ability to manage monthly housing costs relative to their income. Typically, lenders prefer this ratio to be kept below a certain percentage to ensure borrowers are not over-leveraging themselves with housing expenses.

The other terms serve different purposes: the debt-to-income ratio looks at total monthly debt obligations compared to income, while the loan-to-value ratio evaluates the loan amount against the appraised value of the property. The income-to-debt ratio is not a standard term used in mortgage lending. Understanding the housing expense ratio helps homebuyers and borrowers grasp how much of their income is allocated to housing and aids in budgeting for a sustainable financial future.