Not more than ____% of the gross monthly income should be spent for housing including mortgage, insurance, utilities, and taxes.

• A. 15
• B. 30
• C. 20
• D. 25

Answer: (D)

The main idea is housing affordability measured as a share of gross income. This uses the housing expense ratio, which adds up what you pay for housing—mortgage or rent, insurance, property taxes, and utilities—and compares it to your gross monthly income. The reason twenty-five percent is the best answer here is that it sets a practical cap that keeps enough money available for other essentials like food, transportation, healthcare, debt payments, and an emergency fund. If housing costs rose to thirty percent, less would be left for everything else; keeping it at twenty-five percent provides a comfortable balance between a decent housing payment and financial flexibility. For example, with a gross monthly income of $4,000, twenty-five percent means housing costs should stay at or below $1,000.