What is the formula for calculating the maximum PITI based on the housing ratio?

The formula for calculating the maximum PITI (Principal, Interest, Taxes, and Insurance) based on the housing ratio is determined by applying a percentage to the gross monthly income. The correct choice here is derived from standard mortgage lending guidelines, which often suggest that housing expenses, including PITI, should not exceed a certain percentage of the borrower’s gross monthly income to ensure they can comfortably manage their payments.

In this case, using gross monthly income multiplied by 33% reflects a commonly accepted guideline known as the housing ratio, which is set to maintain a manageable level of housing costs relative to income. This level aims to balance affordability and financial responsibility, helping borrowers avoid becoming house-poor—spending too much of their income on housing costs at the expense of other vital expenses.

The other options reflect different percentages, which might not align as closely with typical lending guidelines. For instance, some may suggest higher percentages that could lead to financial strain, while lower percentages might be used in specific markets or for different loan products but are not the standard calculation for typical PITI limits.