Mortgage Qualification: HER vs. TOR and PITI – TSRE Support Center

HER measures housing costs. TOR measures housing costs plus other qualifying debts. Both use gross monthly income. Calculate the dollar totals first, then divide. Do not add one percentage to the other.

Which ratio does the question ask for?

Ratio	Calculation
Housing expense ratio (HER), or front-end ratio	Monthly housing expense ÷ gross monthly income × 100
Total obligation ratio (TOR), or back-end debt-to-income ratio	(Monthly housing expense + other qualifying monthly debts) ÷ gross monthly income × 100

Gross income is income before taxes and payroll deductions. If the question gives annual income, divide it by 12 before comparing it with monthly payments. Actual ratio limits vary by lender and loan program; use the limits supplied in a study problem. See the CFPB explanation of debt-to-income ratios.

Start with PITI, then check what is included

PITI means principal, interest, property taxes, and property insurance. Housing expense may also include mortgage insurance, association dues, and other applicable housing charges. Mortgage insurance (PMI or MIP) is different from insurance protecting the property. Fannie Mae lists the components of monthly housing expense.

If a question lists PITI and a separate monthly MIP amount, determine whether the stated PITI already includes that amount. Add each required item once. If a question asks for PITI alone, do not substitute the larger total housing expense. Likewise, a total explicitly described as including housing must not have housing added again.

Worked example

Assume gross monthly income of $8,000 and these monthly amounts:

Principal and interest: $1,600
Property taxes: $250
Property insurance: $100
Mortgage insurance, not included above: $150
Association dues: $100
Other qualifying debts: $600 + $200 + $200 = $1,000

PITI: $1,600 + $250 + $100 = $1,950.
Total housing: $1,950 + $150 + $100 = $2,200.
HER: $2,200 ÷ $8,000 × 100 = 27.5%.
Total obligations: $2,200 + $1,000 = $3,200.
TOR: $3,200 ÷ $8,000 × 100 = 40%.

If this exercise specifies maximum ratios of 30% and 41%, both ratios meet those limits. If it instead specifies 30% and 38%, HER passes but TOR does not. These are hypothetical exercise limits; passing two ratios alone does not establish loan approval.

Try three practice questions

Gross annual income is $84,000. Monthly housing is $1,750 and other qualifying debts are $700. What are HER and TOR?
Total monthly obligations are $2,800, including $1,900 in housing. Gross monthly income is $7,000. What is TOR?
A problem gives PITI of $1,800, a separate $120 monthly mortgage insurance charge not included in PITI, no dues, and gross monthly income of $6,000. What is HER?

Answers and explanations

Monthly income is $7,000. HER = $1,750 ÷ $7,000 = 25%; TOR = $2,450 ÷ $7,000 = 35%.
40%. Divide $2,800 by $7,000. Adding $1,900 again would count housing twice.
32%. Housing is $1,920; $1,920 ÷ $6,000 = 0.32.

Keep studying

See Real Estate Math: How to Choose the Right Formula and the exam-prep guide. If a course question is still unclear, submit a support request with the course, lesson, practice-question number, and your calculation. These examples are original study exercises.