A.     When you’re interested in purchasing a home, the mortgage company or your REALTOR^® will usually determine the amount you can afford by using one of two formulas. 
 
      The Payment to Income Ratio is a fairly simple formula.  It adds your future mortgage payment, property taxes and insurance together to get what is called a “PITI” payment.  This amount is divided by your total household income to produce a percentage.  Most loan companies consider anything under 28 percent an acceptable ratio and the loan is granted. 
 
      The Debt to Income Ratio is not as simple.  It not only adds the PITI payment, but all monthly payments.  This includes auto loans, credit card payments, investment payments, and other fixed monthly bills.  The acceptable percentage using this method is usually higher than the standard 28 percent, but varies by lender. 
 
      The easiest way to figure out what you can afford is to figure out your Payment to Income Ratio using a monthly payment that produces a final percentage slightly under 28 percent of your income.  Then using a loan amortization chart, which can be found from your REALTOR^®, you can identify the appropriate price range for your future home.  Of course, the overall price range also is affected by the amount of your down payment, current interest rates, and the term of the loan. 
 
      Most REALTORS^® work with mortgage companies and offer professional consultation to help you determine how much you are qualified to purchase. Please call us  if you are considering buying a home in the near future, and require competent and caring representation.