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The sum of real estate taxes, insurance, and interest and principal payments on a mortgage should...

Question:

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.

Mortgage Affordability:

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.


Learn more about this topic:

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Buying a House: Mortgage Types & Loan Length

from Finance 102: Personal Finance

Chapter 7 / Lesson 4
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