As consumer taking out a mortgage loan, computing a house payment can be a time-consuming process running calculations, let alone qualifying these days. What consumers don’t oftentimes realize, there’s a much easier way to calculate a house payment.
Some terms to become familiar with:
House Payment or rather PITI
Principal-represents principal balance being paid down over the term of an amortizing mortgage such as a 30 year fixed home loan
Interest-refers to the amount of the payment that goes towards interest each month during the loan repayment e.g. 360 months, 180 months, etc.
Taxes-refers to the monthly property taxes built into the house payment, oftentimes deemed an impound or escrow account
Insurance-represents the monthly amount going towards hazard/fire insurance collected by the lender each month
DTI Debt To Income Ratio
Debt To Income-is the amount of total monthly liabilities expressed as a percentage for qualifying against monthly income. (PITI + monthly liabilities) ÷ monthly income.
Easy Formula For Determining House Payment
For every $100,000 borrowed it is approximately $725 per month PITI
Depictions reflect change in house payment..
- Borrowing $100,000-expect house payment to be approximately $725/month
- Borrowing $200,000-expect house payment to be approximately $1,450/month
- Borrowing $300,000-expect house payment to be approximately $2,175/month
- Borrowing $400,000-expect house payment to be approximately $2,900/month
- Borrowing $500,000-expect house payment to be approximately $3,625/month
As informed borrower, consider most lenders will want the payment to be no more than 45% of the total monthly liabilities including a proposed housing payment. (*Note this does vary from loan program to loan program, but the consensus is up to a 45% debt ratio)
Let’s say a consumer wants to buy a home for $350,000.
As we know, a house for $350,000 using half of the $725 per month in PITI generates a monthly payment of approximately $2,537.50 per month. Assuming no other monthly payment liabilities, using a 45% debt to income ratio, a consumer would $5638 per month in income to offset the house payment in ordo qualify for the mortgage.
How monthly liabilities affect the numbers in determining house payment eligibility
Using the above example, let’s say the month liabilities consist of ; a lease payment for $300 per month and another$80 per month in credit cards. Assuming our example income $5,638 per month, to purchase that $350,000 home, the monthly income would have to be $6,482 per month adjusting for monthly liabilities (determined house payment + liabilities) ÷monthly income. Alternatively, reducing the purchase price to $300,000 is another solution, in making the numbers pencil.
*Mortgage Tip: 45% of the total monthly income less monthly liabilities is the maximum house payment a consumer can qualify at, then simply decipher what the monthly payment is relative to amount sought based upon using $725 per month for every $100,000.
Other factors to aware of in qualifying for mortgage loan financing…
→Monthly mortgage insurance changes house payment, less than 20% equity (equity same thing as down payment) will typically contain monthly mortgage insurance paid by the borrower for the benefit of the lender
→Down payment/equity positively influences borrowing power
→Meeting lender’s minimum credit score required for financing, 620 is quite common
→Assets/reserves generally, you’ll need at least two months of PITI saved in the bank to meet lender’s reserve guidelines.
If you’re in the market for a mortgage or trying to determine how much house payment you can take on, we’d be happy to run the math for you to show how the numbers pencil given your qualifying ability. You can start today by getting qualified online with us for free, no obligation. We can walk you through your ability to qualify for your ideal house payment.