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Housing Expense Ratio

Housing Expense Ratio

A financial measurement used to compare a person's housing expenses to their pre-tax income. This ratio is calculated by dividing the total housing expenses, including mortgage payments, property taxes, insurance, and utilities, by the individual's gross income before taxes. The result is expressed as a percentage, and generally, a lower ratio indicates more affordable housing. For example, if someone has a pre-tax income of $50,000 per year and pays a total of $15,000 in housing expenses, their housing expense ratio would be 30%. The recommended ratio is no more than 28%, according to financial experts. This ratio is an important tool for determining how much of a person's income is being allocated towards their housing expenses and can help them make informed decisions about whether or not they can afford to purchase or rent a particular property. In my opinion, this ratio is an essential aspect of financial planning that should be carefully considered before committing to any long-term housing expenses.
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