What are FHA requirements for housing expense ratio (HER) and total obligations ratio (TOR)?

• A. 28% (HER) and 36% (TOR)
• B. 30% (HER) and 40% (TOR)
• C. 32% (HER) and 44% (TOR)
• D. 25% (HER) and 35% (TOR)

Answer: (A)

The concept being tested is how FHA limits borrower debt load through two specific ratios: housing expenses and total obligations. The housing expense ratio compares the monthly housing payment (principal, interest, taxes, insurance, and mortgage insurance) to gross monthly income. The total obligations ratio looks at all monthly debt payments—housing plus other recurring debts—as a share of gross monthly income. For standard FHA guidelines, the typical limits are 28% for the housing expense ratio and 36% for the total obligations ratio. This means the housing payment should not exceed 28% of gross income, and all monthly debts together should not exceed 36% of gross income. These limits are designed to ensure the borrower has enough income left for other living expenses and contingencies. If ratios approach or exceed these limits, lenders may require compensating factors or consider the loan ineligible under standard FHA criteria.