Lender's Limits
Your monthly housing expense. A lender defines your housing expense as the total of your:
- Mortgage payment (principal and interest, PI)
- Property taxes (T)
- Insurance (I)
The common acronym for this total housing expense is PITI.
The "formula." A typical lender may require that this total housing expense (PITI) must not exceed 33% of your monthly gross income (before taxes). For the self-employed, the lenders use the net income (after-expenses) from the bottom line of Schedule C.
For example. You have a monthly gross income of $7200. Your monthly housing expense (PITI) will need to be $2400 or less.
Other debts. Of course there is one more consideration, the extent of your indebtedness. A lender will also allow another 5% of your monthly income to go towards other debt payments.
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