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Mortgage Math

Mortgage lenders use many of the following basic mortgage calculations in their mortgage qualification process.

Cash Required

Funds required at closing. This is the total of a buyer's closing costs and down payment amount.

Total Closing Costs
+ Down Payment

Cash Required

Debt Ratio

The percentage of monthly income that can be applied toward monthly long-term debt obligations. Loan programs have different guidelines on debt ratio percentages. Government loan programs typically have higher debt ratio percentages, allowing more homebuyers to qualify for loans.

Debt Ratio = PITIO
Total Monthly Income

Down Payment

The Down Payment can be shown as:

  • The difference between the Home Sale Price and the Loan Amount
  • One of the main parts of the "up-front" cash required at closing
  • A percentage of the home sale price paid at closing. For example, a 20% down payment on a $100,000 sale price is equivalent to a down payment of $20,000 at closing.

Home Sale Price
- Loan Amount

Down Payment

Front-End Ratio

The percentage of monthly income that can be applied toward monthly house payments. Each loan program has different guidelines on front-end ratio percentages. Typically, government loan programs have higher front-end ratio percentages, allowing more homebuyers to qualify for loans.

Front-End Ratio = PITI
Total Monthly Income

Maximum Loan Amount

Sum of the total loan amount and other financed fees. It represents the maximum amount that the lender is willing to offer based on constraints including income, debt, and cash available. This maximum loan amount is set by the lender or by the specific loan product.

For example, a lender offering to finance a $100,000 home with a LTV of 97% approves a maximum loan amount of $97,000. The buyer must include the remaining 3% ($3,000 in this example) in the down payment.

Home Sale Price
  Loan to Value (LTV)%

Maximum Loan Amount

PITI

Sum of Principal, Interest, Property Taxes, and Insurance payments. For most homeowners, PITI represents the amount of their monthly mortgage payment.

Principal
Interest
Property Tax
+ Insurance

PITI

PITIO

Sum of Principal, Interest, Taxes, Insurance, and Other monthly non-housing costs.

Principal
Interest
Property Tax
Insurance
+ Total Other Costs

PITIO

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teacherdough.com
A Division of Signature Home Loans, LLC
9192 Red Branch Rd., Ste. 280, Columbia, MD 21045
410-715-4081 / Info@teacherdough.com

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