The Economic Consequences of Homelessness in The US

are not included. Ideally, no more than 36 percent (conventional) or 43 percent (FHA) of
your monthly income is to be used to pay these total combined PITI and monthly debts.
Calculating Ratios
For example, if you earn $6,000 monthly, and you have a car payment of $497 and
credit card charges of $198 a month, the highest total housing payment you would
qualify for, given a 20 percent downpayment (conventional loan) would be
approximately $2,100. On FHA, the upper limit (using a 3.5 percent downpayment)
would be roughly $2,590.
Expert Insight
Normally, FHA will require your mortgage payment (PITI) to not exceed 31 percent of
your gross monthly income. Additionally, your total monthly debt obligations (mortgage,
credit cards, car and student loans, child support, etc.) should not surpass 43 percent of
your monthly earnings. These ratios are more generous than what can be found with
conventional loans. Higher ratios are obtainable if you’re acquiring an energy-efficient
home. What is called the "stretch" ratio is a liberal 33/45 percent.
Considerations
When considering purchasing a home with less than 20 percent downpayment, you will
most likely be required to purchase mortgage insurance that will add to your PITI. On an
FHA loan, the insurance is called Mortgage Insurance Premium (MIP). On less than 20
percent down on conventional loans it is called Private Mortgage Insurance (PMI). VA
loans have an additional Funding Fee. All of these add to your cost and detract from the
amount of mortgage for which you qualify.
Prevention/Solution
To learn what your income to debt ratios may be, contact a mortgage professional and
ask to be preapproved. Prequalified is not the same as preapproved--which means your
file has gone through some underwriting and you’ll know exactly what amount of your
income should be used for a mortgage. Consider also that you can contact the
Department of Housing and Urban Development (HUD) to find a housing counselor who
can guide you, at no cost, as you go through the mortgage process.
Benefits
For first-time home buyers, CalHFA (California's Consumer Home Mortgage
Organization) offers lower than market interest rate programs and downpayment
assistance programs to qualifying home buyers.
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