What formula calculates the Housing Expense Ratio (HER)?

The Housing Expense Ratio (HER) is a crucial calculation used in real estate to determine what portion of an individual's gross monthly income goes toward housing expenses, specifically the Principal, Interest, Taxes, and Insurance (PITI) that comprise a mortgage payment. The correct formula to find this ratio is to divide the monthly PITI payment by the monthly gross income.

This ratio helps lenders evaluate a borrower's ability to manage monthly housing costs within their income level. By using this formula, you ascertain the percentage of income that is allocated to housing, which is significant in assessing financial stability and the risk associated with lending.

The other formulas do not properly reflect the relationship between housing expenses and income in the same way. They either suggest different metrics or do not align with the standard calculation used in determining the HER. Hence, this ratio is essential for evaluating housing affordability and making informed lending decisions.