The Effect Real Estate Taxes and Insurance
have on Mortgage Loan Approvals
and Monthly Mortgage Payments
There is an acronym in the Mortgage Loan Industry known as PITI. This stands for:
- Insurance(s) (Insurance for Homeowners Premium and Monthly Mortgage Insurance must be calculated and included in an Estimated Housing Payment. Mortgage Insurance is required if a Down Payment is less than 20%).
If buying a property within a Homeowners Association, you can add an "A" to the end of that list/word, so it becomes PITIA.
PITI/PITIA is the actual total housing payment that is arrived at when a Loan Officer is "pre-approving" a Home Buyer.
As Mortgage Lenders, we tend to focus mostly on the Sales Price or Loan Amount for Home Buyers' Pre-Approvals. But I'm ultimately trying to pin down the Maximum Payment of PITI/PITIA. This payment is then compared to the Home Buyer's gross monthly income for what's called the Housing Ratio ... or Front-End Ratio.
To arrive at the Total Debt Ratio, or Back-End Ratio (ideally 43% in this day and age), I add the Mortgage Payment (PITI/PITIA) to the other monthly debt my Borrowers have ... that debt coming from Auto Loans, Student Loans, Installment Payments, Credit Card Payments, Child Support (if applicable) that my Borrower may have.
So what is the significance of this seemingly straight-forward lending exercise??
I want to illustrate how important it is to know if the piece of property my Borrower is considering for purchase lies within a Homeowners Association ... and if it does, what the corresponding Association Dues are.
Knowing the last available Real Estate Tax Bill is also important for a Mortgage Lender and Borrower. That bill is needed in order to calculate a Monthly Payment. If Mortgage Insurance is needed, there are various factors that impact and figure into the cost of that Insurance (i.e., Credit Scores, Down Payment Percentage, Owner-occupied VS Investor, etc.).
And lastly, the Principal and Interest (P&I) Payment is calculated based on the appropriate combination of Loan Amount and Interest Rate. Add the Estimate for monthly Homeowners Insurance ... and I get a reliable PITI/PITIA.
Without a "reliable" and accurate PITI/PITIA, I'd be gambling with your Approval in Underwriting, especially when you're approaching the Maximum Allowable Debt-to-Income Ratio (DTI). Debt-to-Income Ratios are best kept at 43% to 45% (or less), for your optimum chance of receiving Loan Approval.
The Effect Real Estate Taxes and Insurance have on Mortgage Loan Approvals and Monthly Mortgage Payments. Home Buyers need an accurate calculation of their total Monthly Mortgage Payment in order to make sound decisions surrounding their Mortgage financing and home purchase. It may seem like I'm asking a lot of questions when we're in the Pre-Qualifying stage of your Mortgage Process. But as you can see from above, the success of your Approval depends on me asking them.
* Hoping to Buy, Refinance, or Construct a Home within a Lincoln-Way Community (Manhattan, New Lenox, Mokena, Frankfort), Will County, or elsewhere in Chicagoland? Contact me today! I'll put my 36 years of Mortgage experience and expertise hard to work on your behalf.
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Gene Mundt, Mortgage Lender, a Lender with 36 years of mortgage experience, will offer you exemplary mortgage service and advice when seeking: Conventional, FHA, VA, Jumbo, USDA, and Portfolio Loans in Chicago and the greater Chicagoland region, including: The Lincoln-Way Area, Will County, (New Lenox, Frankfort, Mokena, Manhattan, Joliet, Shorewood, Crest Hill, Plainfield, Bolingbrook, Romeoville, Naperville, etc.), DuPage County, the City of Chicago, Cook County, and elsewhere within IL.