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Basic Mortgage Math

Mortgage lenders use many of the basic mortgage calculations found below, in their mortgage qualification process. You may want to reference this information when you visit the Affordability section.

Cash Required

Funds required at closing. This is the total of a buyer's closing costs and down payment amount.

Total Closing Costs + Down Payment = Cash Required

Debt Ratio

The percentage of monthly income that can be applied toward monthly long-term debt obligations. Loan programs have different guidelines on debt ratio percentages. Government loan programs typically have higher debt ratio percentages, allowing more homebuyers to qualify for loans.

PITIO ÷ Total Monthly Income = Debt Ratio

Down Payment

The Down Payment can be shown as:

The difference between the Home Sales Price and the Loan Amount
One of the main parts of the "up-front" cash required at closing
A percentage of the home sales price paid at closing. For example, a 20% down payment on a $100,000 sales price is equivalent to a down payment of $20,000 at closing

Home Sales Price - Loan Amount = Down Payment

Front-End Ratio

The percentage of monthly income that can be applied toward monthly house payments. Each loan program has different guidelines on front-end ratio percentages. Typically, government loan programs have higher front-end ratio percentages, allowing more homebuyers to qualify for loans.

Front-End Ratio ÷ Total Monthly Income = PITI

Maximum Loan Amount

Sum of the total loan amount and other financed fees. It represents the maximum amount that the lender is willing to offer based on constraints including income, debt, and cash available. This maximum loan amount is set by the lender or by the specific loan product.

For example, a lender offering to finance a $100,000 home with a LTV of 97% approves a maximum loan amount of $97,000. The buyer must include the remaining 3% ($3,000 in this example) in the down payment.