How is the housing expense ratio calculated?

The housing expense ratio is a critical measure used to determine the proportion of a borrower's gross monthly income that is allocated toward housing expenses, specifically the total mortgage payments. This ratio is calculated by taking the total mortgage payment—which typically includes principal, interest, property taxes, and insurance—and dividing it by the borrower's gross monthly income.

This calculation helps lenders assess the affordability of the housing costs for potential borrowers. A lower ratio generally indicates that a borrower is more likely to manage their housing expenses comfortably within their income, which can influence lending decisions and the approval process for mortgages.

The other options describe different calculations that do not specifically represent the housing expense ratio. While other expenses and total income can be relevant in broader financial assessments, they do not focus solely on the housing costs in relation to income, which is the key feature of calculating the housing expense ratio.