Mortgage Loan Originator (MLO) Licensing Practice Test 2026 – Your All-in-One Guide to Exam Success!

The formula for calculating the Front-end Housing Ratio is the division of the monthly housing expense by the income. This ratio is a crucial metric used by lenders to evaluate a borrower's ability to manage monthly mortgage payments in relation to their overall income. It primarily includes costs directly associated with housing, such as principal, interest, property taxes, and homeowners insurance.

This ratio is expressed as a percentage and provides a clear view of how much of an individual's income will go towards housing costs. Lenders typically prefer this ratio to be no higher than 28-31%, as higher ratios may indicate that a borrower is overextending themselves financially.

In contrast, the other options refer to calculations that do not specifically measure the front-end ratio. Total monthly obligations include all debt payments, not just housing expenses, which is why those ratios have different implications for assessing creditworthiness. Understanding the distinction between the front-end and back-end ratios is key for aspiring mortgage loan originators as they guide clients through the loan process.