What do FHA housing expense ratio (HER) and total obligations ratio (TOR) measure?

• A. Property condition
• B. Borrower's housing expenses and total monthly obligations as a percentage of income
• C. Appraised value vs loan amount
• D. Down payment requirements

Answer: (B)

These ratios measure a borrower's ability to handle housing costs and other monthly debts as a share of income. The housing expense ratio looks at the monthly payments that are considered housing costs—principal and interest on the loan, property taxes, homeowners insurance, mortgage insurance (if applicable), and any HOA dues—and compares that total to gross monthly income. The total obligations ratio broadens this by including all other recurring monthly debts the borrower has, such as credit card payments, car loans, student loans, and alimony or child support, again as a percentage of gross monthly income.

Together, these ratios help lenders gauge whether the borrower can afford the loan and maintain other living expenses. They are not measures of property condition, they do not compare appraised value to loan amount, and they do not set down payment requirements.