Conventional Mortgage Loan Features

To determine if a borrower can afford a conventional loan, lenders rely on two specific calculations called qualifying ratios. These ratios compare the borrower’s income to their debts to ensure they are not overextended. While guidelines can vary, conventional lenders have historically used benchmarks of 28% for housing expenses and 36% for total debt obligations.Housing Expense Ratio Calculation The housing expense ratio, also known as the "front-end ratio," calculates the percentage of the borrower's gross monthly income that will go specifically toward housing costs. To calculate this, the lender adds up the Principal, Interest, Taxes, and Insurance (often abbreviated as PITI), plus any homeowner association dues. This total is then divided by the borrower's gross monthly income. For a standard conventional loan, the lender typically prefers this figure not to exceed 28%.