For a conventional mortgage, a lender feels comfortable if borrowers use only 28%, or less, of their monthly PITI payment. What then is a PITI payment? Most lenders will want you to make three payments rolled into one, every month, called the PITI payment. "PI" stands for the principal and interest, otherwise known as your mortgage payment. "T" stands for one month's worth of property taxes and "I" stands for one month's worth of homeowner's insurance. The lender will collect those payments from you and then pay your taxes for you and renew your homeowners insurance when it comes due.
To determine someone's maximum monthly payment, in most cases, they use a specific formula. They start with the borrowers total monthly gross income. They will then multiply the monthly gross income by 28%, lets call the result figure "A". Next they will multiply the monthly gross income by 36%. From the resulting figure, they will subtract any monthly payments the borrower is making that have more than ten payments remaining such as a car loan with 21 payments remaining or credit card payments with 18 months remaining. They do include alimony, child support and monthly payments on other real estate. If you are buying a house that you are going to move into and are either presently renting or selling the house you live in, they do not include present utilities, rent or mortgage payments. After the subtraction is completed, lets call this figure "B", and compare it to figure "A". Whichever figure is less, "A" or "B", that is the maximum monthly PITI payment that a lender will usually allow.
All well and good, but what does that monthly figure mean to us as a borrower? If we take that monthly PITI figure and subtract from it the estimated monthly taxes on the house we are looking for, and then subtract the estimated monthly homeowners insurance payment (1/12 of the annual payment) we will then be left with just the PI figure which would represent our maximum monthly mortgage payment toward our mortgage.
 Now we have a maximum monthly mortgage payment figured out but, how much of a mortgage will that get us? Refer to the chart and first determine the interest rate your lender is giving you and locate that figure in the first column. Then read along the top row and stop at the number for the length of years your mortgage will run. Read down that column and stop at the row which has your interest rate.
From here the rest is easy. Take the figure at the intersection of your chosen column and row, divide it into your maximum monthly mortgage payment, take that resulting figure, multiply it by 1,000, and you now have your maximum mortgage amount that you may choose to borrow if you wish to.
If your down payment is between 5% and 9.99% use 25% and 33% figures at the beginning of your calculations, otherwise use 28% and 36%.
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All well and good, but what does that monthly figure mean to us as a borrower? If we take that monthly PITI figure and subtract from it the estimated monthly taxes on the house we are looking for, and then subtract the estimated monthly homeowners insurance payment (1/12 of the annual payment) we will then be left with just the PI figure which would represent our maximum monthly mortgage payment toward our mortgage.
Now we have a maximum monthly mortgage payment figured out but, how much of a mortgage will that get us? Refer to the chart and first determine the interest rate your lender is giving you and locate that figure in the first column. Then read along the top row and stop at the number for the length of years your mortgage will run. Read down that column and stop at the row which has your interest rate.
From here the rest is easy. Take the figure at the intersection of your chosen column and row, divide it into your maximum monthly mortgage payment, take that resulting figure, multiply it by 1,000, and you now have your maximum mortgage amount that you may choose to borrow if you wish to.
If your down payment is between 5% and 9.99% use 25% and 33% figures at the beginning of your calculations, otherwise use 28% and 36%.
