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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.
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.
Down Payment The Down Payment can be shown as:
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.
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.
PITI Sum of Principal, Interest, Property Taxes, and Insurance payments. For most homeowners, PITI represents the amount of
their monthly mortgage payment.
PITIO Sum of Principal, Interest, Taxes, Insurance, and Other monthly non-housing costs.
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