Why It Matters
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.
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.