Question:

How is the monthly PITI related to my income to qualify for a mortgage loan?

Answer:

The monthly PITI (principal, interest, taxes and insurance) is required to assess the borrower's capacity to deal with (another) mortgage payment. The borrower's income is taken together with the mortgage loan amount and interest rate and the lender uses the information to decide whether the consumer qualifies for the desired mortgage amount.

How is monthly PITI used to determine if you qualify for a mortgage loan?

For full documentation loans the following calculations are usually valid:

  • Gross monthly income X 28% should not be less than the expected monthly PITI if the borrower has no other loans.
  • Gross monthly income X 36% MINUS all other monthly debt payments should not be less than the expected monthly PITI.

Reduced documentation loans can allow higher Monthly Housing Expenses ratio that can go as high as 65%. However, due to current turbulence experienced in the mortgage loan market, such ratio is unlikely to be offered to most borrowers.

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