The sum of real estate taxes, insurance, and interest and principal payments on a mortgage should not exceed:
14% of your total income.
42% of your total income.
28% of your total income.
36% of your total income.
None of the above.
When consumers and banks evaluate mortgages, affordability is an important factor. A common guideline used is that the total of taxes, insurance, and mortgage payments should not exceed a given fraction of total income.
Answer and Explanation:
The answer is 28% of your total income.
Most lenders would prefer a front-end ratio of 28% for PITI payments. Principal, interest, taxes, insurance (PITI) is the sum of principal payment , loan interest, property tax, and property and private mortgage insurance premiums. It is desirable that PITI payment does not exceed 28% of one's pre-tax income.
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from Finance 102: Personal FinanceChapter 7 / Lesson 4