subject: Affording Your Real Estate Month After Month [print this page] Affording Your Real Estate Month After Month
"PITI" stands for Payment to Income Ratio. It is comprised of your monthly mortgage payment, your property taxes and insurance all in one. What I mean by taxes is either the taxes assessed by your local city or state which places a "value" on them. Then it is taxed at a percentage of the value. Then Insurance works in one or two ways.
So first you have Homeowners Insurance which is insuring the physical aspect of the property from damage. The second that most buyers have but not all is Private Mortgage Insurance or "PMI". That occurs when your down payment is less than 20% of the appraised value of the property.
This formula stems from when mortgages were coming into existence and the standard down payment was 20%. So if you put down less than that then the lender issues you an insurance policy so that if you default on your mortgage they can at least recover the 20% down.
When you're thinking about buying a house, the lender or your real estate agent will adjust the price that you qualify for by 2 different methods.
Some industry standards just don't change regardless of how much time has passed.
The Debt to Income Ratio is not as simple. It not only adds the PITI payment, but all monthly payments. This includes auto loans, credit card payments, investment payments, and other fixed monthly bills. The acceptable percentage using this method is usually higher than the standard 28 percent, but varies by lender.
So if you calculate your payment to income ratio and you find a monthly payment that is about 30% of your total income, then you know what you can afford after looking at a loan amortization chart which you can get from your local fairbanks real estate broker or from your local lender. This will tell you the amount you can borrow to purchase a home.
Notwithstanding, this number has to be adjusted once you know how much you will be putting down, current interest rates and the terms of the mortgage.
The indicated simple methods to be consistent with will help you to instantaneously do the math in your head with satisfactory accuracy to have a larger idea of what you can expect when you are looking at variant real estate scenarios throughout the home buying process.
