What Is Housing Expense Ratio?
Housing expense ratio = PITI ÷ gross monthly income. Most conventional lenders cap it at 28%—if you earn $6,000/month, your housing payment can't exceed $1,680. For house-hacking, rental income from other units can offset your share. FHA allows up to 31%. Know your ratio before you shop—it sets your mortgage ceiling.
The housing expense ratio is the percentage of your gross monthly income that goes toward PITI—principal, interest, taxes, and insurance. Lenders use it to qualify borrowers.
At a Glance
- What it is: PITI as a % of gross income
- Why it matters: Lender qualification; sets your buying power
- Typical cap: 28% conventional, 31% FHA
- House hack angle: Rental income can lower your effective ratio
- Use it for: Pre-approval; budgeting
Housing Expense Ratio = PITI ÷ Gross Monthly Income
How It Works
The formula. Housing expense ratio = monthly PITI ÷ gross monthly income. Gross means before taxes and deductions. A $5,000 salary with $1,400 PITI = 28%—right at the conventional limit.
Lender limits. Conventional loans typically cap at 28% housing ratio and 36% total debt ratio (housing + other debt). FHA is looser: 31% housing, 43% total. Exceptions exist for strong credit and reserves.
House hacking twist. When you house-hack, lenders may count 75% of rental income from other units toward your income. A duplex where you live in one unit and rent the other for $1,200/month: $900 counts. That $900 offsets your PITI, effectively lowering your ratio. Your $1,400 payment on $5,000 income = 28%. Add $900 rental: effective income = $5,900, ratio drops to 24%.
Why 75%? Lenders assume vacancy and expenses. They don't give you full rent credit.
Real-World Example
Jacob in Columbus. Jacob earns $5,200/month. He wanted a duplex. Conventional 28% cap = $1,456 max PITI. A duplex at $280,000 with 5% down would run ~$1,800 PITI—over the limit. The other unit rented for $1,350. Lender counted 75% = $1,012.50. Effective income: $6,212.50. $1,800 ÷ $6,212.50 = 29%—still high. He put 10% down, got a slightly lower payment, and landed at 27%. The rental income got him qualified.
Pros & Cons
- Clear qualification standard
- Rental income can help house hackers
- Predictable underwriting
- Gross income ignores taxes and savings
- 75% rent credit may understate true offset
- Varies by lender and program
Watch Out
- Rent documentation: Lenders want lease + deposit proof for rental income
- Self-employment: Income calculation differs—2 years of tax returns
- DTI creep: Housing ratio is one number; total debt ratio matters too
Ask an Investor
The Takeaway
Housing expense ratio sets your mortgage ceiling. Know it before you shop. For house-hacking, rental income can push you over the line—document it and run the math.