Total Expense Ratio

Total expense ratio is a term used to refer to the ratio made up of a borrower's total monthly debt as compared to their monthly gross income. Lenders are interested in knowing a borrower's total expense ratio because this will shed light into their ability to pay the mortgage payment each month. Monthly debt obligations that are considered include car payments, child support or alimony, credit cards and similar expenses. When borrowers are considering financing a home, they try to reduce the amount of outstanding debt so that their total expense ratio will be more attractive to lenders. One way borrowers can do this is to pay down credit card balances as well as small accounts such as personal loans. Lenders will calculate the total expense ratio after they have obtained the borrowers credit report and financial documentation.