A calculation your lender uses to determine if you can afford a particular monthly payment: The total monthly housing payment (PITI - Principal, Interest, Taxes, and Insurance) is divided by your gross monthly income, and shown as a percentage. For example:
PITI = $1,500 divided by gross monthly income = $6000, Housing ratio = 25%. This example shows an ideal housing ratio, one well below typically acceptable ratios of 28%-33% for conventional loans and 29%-31% for FHA loans. Also known as a front-end, or qualifying ratio.