What is the qualifying HER and TOR ratio for conventional loans?

What is the qualifying HER and TOR ratio for conventional loans?

• A. 28% - 36%
• B. 31% - 43%
• C. 29% - 41%
• D. Not applicable (HER)

Answer: (A)

Conventional loans typically use a front-end housing expense ratio of 28% and a back-end total obligation ratio of 36%. The housing expense ratio (HER) compares your monthly housing payment (principal, interest, property taxes, homeowners insurance, and any HOA dues) to your gross monthly income. The total obligation ratio (TOR) includes all monthly debt payments—housing plus other debts like credit cards, student loans, and car payments—divided by gross monthly income. Keeping HER at or below 28% and TOR at or below 36% helps ensure the borrower can manage monthly obligations without overextending. Some lenders may allow higher ratios with compensating factors, but those are deviations from the typical guideline. The other options reflect different loan programs (for example, FHA often uses higher ratios like 31%/43%), so they aren’t standard for conventional loans. The notion that this is not applicable is incorrect because HER and TOR are indeed used for conventional loans.

Conventional loans typically use a front-end housing expense ratio of 28% and a back-end total obligation ratio of 36%. The housing expense ratio (HER) compares your monthly housing payment (principal, interest, property taxes, homeowners insurance, and any HOA dues) to your gross monthly income. The total obligation ratio (TOR) includes all monthly debt payments—housing plus other debts like credit cards, student loans, and car payments—divided by gross monthly income. Keeping HER at or below 28% and TOR at or below 36% helps ensure the borrower can manage monthly obligations without overextending. Some lenders may allow higher ratios with compensating factors, but those are deviations from the typical guideline. The other options reflect different loan programs (for example, FHA often uses higher ratios like 31%/43%), so they aren’t standard for conventional loans. The notion that this is not applicable is incorrect because HER and TOR are indeed used for conventional loans.