2025 Total Housing Expense Guide: Calculate Your Mortgage Costs and Ratios for Smart Home Buying

Julia Kagan is a financial and consumer journalist and former senior editor of personal finance at ZAMONA.

What Is Total Housing Expense?

Total housing expense encompasses all monthly costs a homeowner faces, including mortgage principal and interest payments, property taxes, insurance premiums, and sometimes utilities or homeowners association fees. This figure is crucial for lenders when assessing whether a borrower qualifies for a mortgage loan by calculating the housing expense ratio.

Key Highlights

• Total housing expense aggregates every monthly cost tied to homeownership.
• Common components include mortgage payments, homeowners’ insurance, property taxes, and association dues.
• Some lenders factor in utilities and other housing-related bills.
• Understanding your total housing expense helps determine if your income supports homeownership.

Breaking Down Total Housing Expense

Your total housing expense is the sum of all relevant monthly housing costs such as:

• Mortgage payment (principal and interest)
• Homeowners' insurance premiums
• Property taxes
• Private mortgage insurance (PMI), if applicable

In some cases, lenders include utilities and other recurring housing expenses when calculating this total. Accurately reporting these costs is essential for mortgage applications and helps calculate your housing expense ratio — the percentage of your gross monthly income allocated to housing costs.

Understanding Mortgage Loan Qualification Ratios

Lenders use two primary ratios to evaluate mortgage eligibility: the total housing expense ratio and the debt-to-income ratio.

Total Housing Expense Ratio Explained

This ratio compares your total monthly housing costs to your gross monthly income before taxes. Ideally, lenders look for a housing expense ratio of 28% or less, often called the front-end ratio.

Example Calculation

If your gross monthly income is $7,500 and your monthly housing costs include:

• Mortgage payment: $1,500
• Homeowners’ insurance: $150
• Property taxes: $300
• Mortgage insurance premium: $90

Your total housing expense is $2,040. Dividing this by your gross income ($2,040 ÷ $7,500) results in 0.27 or 27%, which meets the typical approval criteria.

Debt-to-Income Ratio (DTI)

Alongside housing expenses, lenders assess your total debt obligations relative to income. The DTI, or back-end ratio, includes debts like student loans, car payments, and credit card bills. A DTI of 36% or below is preferred, though some government-backed loans accept up to 50%.

Both ratios influence not only loan approval but also the maximum mortgage amount lenders will offer.

Pro Tip

Follow the 28/36 rule: allocate no more than 28% of your gross income to housing expenses and no more than 36% to total monthly debt payments to maintain financial health and loan eligibility.

Loan-to-Value Ratio (LTV)

The LTV ratio measures the loan amount against the home's appraised value. For example, a $300,000 loan on a $350,000 home equals an 86% LTV. Many lenders require an LTV of 80% or lower, meaning a 20% down payment is necessary. LTV affects loan terms and down payment requirements.

What Is an Ideal Total Housing Expense Ratio?

The benchmark for most lenders is a housing expense ratio of 28% or less to qualify for a mortgage.

How to Calculate Your Total Housing Expense Ratio

Add your monthly mortgage payment, insurance, taxes, and other housing-related expenses, then divide by your gross monthly income.

Understanding the 28/36 Rule

This widely accepted guideline suggests allocating no more than 28% of your income to housing costs and no more than 36% to total debt obligations to maintain a balanced budget and improve loan approval chances.

The Bottom Line

Calculating your total housing expense accurately is vital for budgeting and qualifying for a mortgage. By understanding your housing costs and how lenders evaluate them through key ratios, you can make informed decisions and confidently navigate the homebuying process in 2024.

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