According to Fannie Mae and Freddie Mac standards, what percentage of a borrower's income can typically be allocated to housing expenses for a conventional loan?

The correct answer is based on the general guidelines set by Fannie Mae and Freddie Mac, two major government-sponsored enterprises that provide liquidity in the mortgage market. They often establish standards for conventional loans to ensure responsible lending practices.

Typically, a borrower can allocate up to 28% of their gross monthly income to housing expenses when applying for a conventional loan. This percentage includes not only the principal and interest on the mortgage but also property taxes and homeowners insurance. This benchmark is considered a conservative approach to ensure that borrowers do not overextend themselves financially when it comes to housing costs.

Adhering to this guideline helps lenders assess the borrower's ability to manage their mortgage payments effectively while leaving room for other essential living expenses. It promotes financial stability for borrowers and reduces the risk of default for lenders. This percentage reflects a balance between making homeownership accessible and maintaining prudent financial practices for all parties involved.