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Torang Nazmi's Blog

By Torang | AATRealty | Broker in 75063

The Percentage of Income to Spend on a Mortgage


PITI is the mortgage industry term for your monthly payment of principal, mortgage interest, property taxes and insurance. When lenders talk about the percentage of your income you're spending on your house, they mean PITI, the Investopedia website states. If you want a mortgage, your PITI will usually have to be below 28 percent of your pretax monthly income. Some lenders will go as high as 40 percent, but the rates will be higher too.


Lenders also want to know the size of your total monthly debts, such as credit card bills, car loans and alimony. When they add that to your PITI, they want it to total no more than 36 percent of your gross income, Investopedia states. If your loan is insured by the Federal Housing Administration, your debt-to-income ratio can be as high as 41 percent.


If the house you want would push your PITI and debt-to-income ratio above what's normally allowed, there are steps that can make the amount more acceptable, according to the Department of Housing and Urban Development. With an FHA-insured mortgage, for instance, solutions can include making a large down payment, showing you have substantial cash reserves or net worth enough to repay the mortgage, or having an excellent credit history.


Paying 28 percent of your income on PITI may seem fine now, but Investopedia recommends that you look down the road. If you plan to put your children through college, for instance, or your job security isn't certain, what seems affordable now may turn into a heavy financial burden. You should also think about how paying for maintenance and utilities would cut into the other 72 percent of your income.


Another factor to keep in mind is your personal comfort level. Someone who's happy buying the biggest house he can afford and cutting back on everything else may be more comfortable with a bigger mortgage than someone who doesn't want to give up eating out and taking exotic vacations.

source : http://homeguides.sfgate.com/percentage-income-spend-mortgage-9720.html

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