PITI — Your Total Monthly Mortgage Payment
PITI stands for Principal, Interest, Taxes, and Insurance — the four components that make up your total monthly housing payment.
Principal — the portion of your payment that reduces your loan balance.
Interest — the cost the lender charges for borrowing the money.
Taxes — your monthly share of annual property taxes (annual tax ÷ 12).
Insurance — your monthly homeowner's insurance payment.
This is the number lenders use to calculate your Housing Cost Ratio. If you have PMI, HOA fees, or flood insurance, those are added on top.
Housing Cost Ratio (also called Front-End Ratio)
Your total monthly housing payment (PITI) divided by your gross monthly income, expressed as a percentage.
Formula: Monthly PITI ÷ Gross Monthly Income = Housing Cost Ratio
Example: $2,000 PITI ÷ $8,000 income = 25% Housing Cost Ratio
Lender guidelines:
• Conventional: ideally at or below 28%
• FHA: up to 31% standard, 40% with strong file
• VA: no official limit — residual income is the primary test
• Jumbo: typically no more than 38%
Total Debt Ratio (also called Back-End Ratio or DTI)
All of your monthly debt payments combined — including your new mortgage payment — divided by your gross monthly income. This is the number lenders focus on most.
Formula: (PITI + All Monthly Debts) ÷ Gross Monthly Income
Example: ($2,000 PITI + $800 debts) ÷ $8,000 income = 35% Total Debt Ratio
Lender guidelines:
• Conventional: ideally 36%, up to 45% standard, 50% with strong automated approval
• FHA: 43% standard, up to 56.9% with automated underwriting and 620+ credit
• VA: 41% guideline — no hard cap if residual income requirement is met
• Jumbo: 43–45% maximum, strictly enforced
Down Payment
The portion of the purchase price you pay upfront in cash. The rest is financed through your mortgage loan.
Conventional: Minimum 3% for primary residence, 15–25% for investment property
FHA: 3.5% with 580+ credit score, 10% with 500–579
VA: 0% — no down payment required for eligible veterans
Jumbo: Typically 10–20% minimum
Putting 20% or more down on a conventional loan eliminates PMI (private mortgage insurance) which can save $100–$500+ per month.
Credit Score — Why It Matters
Your credit score affects which loan programs you qualify for, how much DTI flexibility lenders will allow, and your actual interest rate.
• 500–579: FHA only with 10% down. Conventional not available.
• 580–619: FHA with 3.5% down. Conventional very difficult.
• 620–639: Conventional possible at higher rates.
• 640–699: More lenders and better rates.
• 700–739: Good rates, most programs available.
• 740+: Best rates and maximum DTI flexibility. Conventional allows up to 50% DTI via automated approval.
A difference of 40–60 points can mean a rate difference of 0.5–1.0%, which on a $400,000 loan equals $100–$200+ per month.
Cash Reserves After Closing
The money you have left in savings after paying your down payment and closing costs. Lenders use this as a compensating factor — it shows you can handle unexpected expenses.
Conventional: 2 months of payments recommended
FHA: Not required but helps borderline files
VA: Residual income test covers this, but reserves help
Jumbo: Typically requires 12+ months of payments in reserves
Reserves are measured in months of your total monthly payment (PITI). If your PITI is $3,000 and you have $18,000 in savings, you have 6 months of reserves.
Mortgage Insurance — PMI vs MIP
PMI (Private Mortgage Insurance) applies to conventional loans when your down payment is under 20%. Typically costs 0.5–1.5% of the loan amount annually. Cancels automatically when you reach 20% equity.
MIP (Mortgage Insurance Premium) applies to ALL FHA loans regardless of down payment. Includes an upfront fee of 1.75% of the loan amount at closing, plus an annual premium of 0.15–0.75%. If you put less than 10% down, MIP lasts for the life of the loan.
VA and USDA loans: No monthly mortgage insurance — a significant advantage that saves hundreds of dollars per month.