Home Affordability

The conservative guideline used by the mortgage industry is that housing expense should not be more than 28 percent of income. This is called the housing-to-income ratio and compares the sum of monthly housing expenses to monthly gross income.

Monthly housing expense include payments such as principal, interest, property taxes and hazard insurance and is often referred to as PITI (principal, interest, taxes and insurance). It also can include private mortgage insurance, condo and homeowner fees.

If other factors are thought to compensate for higher risks, lenders may use a housing-to-income ratio above 28 percent. For example if a borrower makes a large down payment a lender might use higher ratios.

There is a good home affordability calculator at CNN that shows a conservative and aggressive loan amount based on 28 and 33 percent of gross income.

By the way, check out our Open Houses for this Sunday.