The housing expense ratio of PITI divided by gross monthly income should not exceed what maximum percentage for conventional loans?

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The correct answer is 28%. The housing expense ratio, which includes principal, interest, taxes, and insurance (PITI), is a critical factor that lenders consider when evaluating a borrower's ability to repay a mortgage. For conventional loans, it is typically recommended that this ratio should not exceed 28% of a borrower’s gross monthly income.

This guideline helps ensure that borrowers can manage their housing costs without overextending themselves financially, thereby reducing the risk of default. Maintaining a housing expense ratio at or below this threshold allows individuals to allocate sufficient funds for other essential expenses in their monthly budget, such as food, transportation, and savings, contributing to overall financial stability.

Understanding this ratio is essential for anyone looking to purchase a home or seeking financing, as it serves as a foundational element in assessing mortgage affordability.