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PITI is an acronym that stands for **principal, interest, taxes and insurance**. Many mortgage lenders estimate PITI for you before they decide whether you qualify for a mortgage. Lending institutions don't want to extend you a loan that's too high to pay back.

On the surface, calculating PITI payments is simple: **Principal Payment + Interest Payment + Tax Payment + Insurance Payment**.

Because PITI represents the total monthly mortgage payment, it helps both the buyer and the lender determine the affordability of an individual mortgage. Generally, mortgage **lenders prefer the PITI to be equal to or less than 28% of a borrower's gross monthly income**.

In total, your PITI should be **less than 28 percent of your gross monthly income**, according to Sethi. For example, if you make $3,500 a month, your monthly mortgage should be no higher than $980, which would be 28 percent of your gross monthly income.

Aim to keep your mortgage payment at **or below 28% of your pretax monthly income**. Aim to keep your total debt payments at or below 40% of your pretax monthly income. Note that 40% should be a maximum. We recommend an even better goal is to keep total debt to a third, or 33%.

The **28% rule** states that you should spend 28% or less of your monthly gross income on your mortgage payment (e.g. principal, interest, taxes and insurance). To determine how much you can afford using this rule, multiply your monthly gross income by 28%.

Besides the down payment money, you should plan for the following upfront costs: **Closing costs, for everything from appraisal and credit-check fees to recording fees to loan points** (each point is 1% of the loan principal; see How Do I Get the Best Deal on a Home Mortgage Loan?.

- Down payment (3-20% of the purchase price) ...
- Earnest money deposit (1-2% of the purchase price) ...
- Home inspection ($300-$500) ...
- Closing costs (2-5% of the purchase price) ...
- Moving expenses (costs will vary)

Monthly housing payment (PITI)

This is your total principal, interest, taxes and insurance (PITI) payment per month. ... Maximum **monthly payment** (PITI) is calculated by taking the lower of these two calculations: Monthly Income X 28% = monthly PITI. Monthly Income X 36% - Other loan payments = monthly PITI.

One key difference to note is that PITI (principal, interest, taxes, and insurance) **can all be paid together each month via mortgage escrow**, while HOA is typically paid directly to your homeowners association.

To calculate your PITI on a 30-year fixed rate loan: Your monthly mortgage principal and interest will amount to about $1,432.25 per month. **Add on your property tax and insurance estimations**. To calculate property taxes, divide your home's value by 1,000 and multiply that number by $1 to find your monthly payment.

To calculate the housing expense ratio, simply **take the sum of all property expenses and divide it by a pretax income**.

**Property tax is included in most mortgage payments** (along with the principal, interest and homeowners insurance). So if you make your monthly mortgage payments on time, then you're probably already paying your property taxes!

When you take out a mortgage, **your home becomes the collateral**. If you take out a car loan, then the car is the collateral for the loan. The types of collateral that lenders commonly accept include cars—only if they are paid off in full—bank savings deposits, and investment accounts.

The annual salary rule

The ideal mortgage size should be **no more than three times your annual salary**, says Reyes. So if you make $60,000 per year, you should think twice before taking out a mortgage that's more than $180,000.

The National Association of Realtors found that the starter median home price in U.S. metro areas was **$233,400** in the first quarter of 2020. If you have a down payment of 20%, which Bera recommends, you'll have to come up with $46,680. If you put down 10%, you'll need $23,340 and a 3% down payment is $7,002.

- Property taxes.
- Homeowners insurance.
- Private mortgage insurance. ...
- Utilities, such as electric, gas, water, sanitation, phone and cable services.
- Homeowners association (HOA) fees, charged by multifamily living communities.

Most home loan processing fees are standard. The best way to avoid paying excessive processing fees is **to shop around for the best mortgage terms before committing to a specific lender and to question each fee before signing**. The lender won't always negotiate on fees, but it can't hurt to ask.

If you don't have the cash to pay closing costs upfront, **you might be able to include them in your loan balance**. ... But it might be a good option if you don't have the upfront cash needed to refinance. At today's low rates, many homeowners can include their closing costs in the loan and still walk away with a good deal.

Standards may differ from lender to lender, but there are four core components — the four C's — that lender will evaluate in determining whether they will make a loan: **capacity, capital, collateral and credit**.

If you were to use the 28% rule, you could afford a monthly mortgage payment **of $700 a month** on a yearly income of $30,000. Another guideline to follow is your home should cost no more than 2.5 to 3 times your yearly salary, which means if you make $30,000 a year, your maximum budget should be $90,000.

So if you earn $70,000 a year, you should be able to spend **at least $1,692 a month** — and up to $2,391 a month — in the form of either rent or mortgage payments.

A good rule of thumb is that your total mortgage should be **no more than 28% of your pre-tax monthly income**. You can find this by multiplying your income by 28, then dividing that by 100.

- Consider holding your property within a limited company. ...
- Transfer property to your spouse. ...
- Make the most of allowable expenses. ...
- Increase your rent. ...
- Change to an offset buy-to-let mortgage. ...
- Before you do anything…

Paying **off** your mortgage early helps you save money in the long run, but it isn't for everyone. Paying off your mortgage early is a good way to free up monthly cashflow and pay less in interest. But you'll lose your mortgage interest tax deduction, and you'd probably earn more by investing instead.