This is also called the top ratio and it should not exceed 28% of total monthly income for a person to be eligible for a mortgage loan. However a ratio higher than 28% may be acceptable to certain lenders if there are other compensating factors such as excellent credit history or having a co-borrower or low loan to value ratio (the value of collateral is much higher than the loan amount).
Also lenders calculate the debt to income or bottom ratio which is the ratio of the sum of estimated future monthly expenses and total monthly debt (includes credit card payments, consumer loans and other financial obligations) to monthly income.
Debt to Income Ratio= ((Future Monthly Housing Expense+Total Monthly Debt))/(Monthly Income)
Typically this ratio should not exceed 36% for disbursing a mortgage loan.
For e.g. If Jack’s salary is 10,000$ per month and his future monthly expenses including mortgage payment, fire insurance, property tax and association fee are 2800$, and his monthly bills including credit card and personal loan payments are 2000$, we can calculate the ratios as given below
Housing Expense Ratio= 2800/10000= 28%
Debt to Income Ratio= (2800+2000)/10000=48%
So the Housing Expense ratio is within the limit of 28% but the Debt to Income ratio is 48% which exceeds the limit of 36%.