What type of expense is included in the calculation of the housing expense ratio?

The housing expense ratio is a critical metric used by lenders to assess a borrower's ability to afford a mortgage. It is calculated by taking into account all of the costs associated with homeownership. The correct option focuses on the components included in the commonly used term PITI, which stands for Principal, Interest, Taxes, and Insurance.

This means that when calculating the housing expense ratio, PITI represents the sum of the monthly principal and interest payments on the mortgage, as well as property taxes and homeowners insurance. Together, these components provide a comprehensive view of the monthly financial commitment required to maintain the home.

While property taxes and homeowners association fees are relevant to overall homeownership costs, they are not included in the specific components outlined by the PITI calculation. Utilities, although necessary for running a household, fall outside the debt obligations that lenders focus on when calculating the housing expense ratio. Therefore, focusing specifically on PITI captures the essence of a borrower's primary housing costs, which is crucial for evaluating financial stability and mortgage eligibility.