--- In AsburyPark@yahoogroups.com, "sharon_b283" <[EMAIL PROTECTED]>
wrote:
>
> Oak,
> I didn't major in Accounting, (Business Admin.), but even I couldn't
> figure out lowering the Principal! The Interest? Yes, but the
> Principal? I'm lost! Principal X the Interest X the time! Is that
> still the formula?
I majored in history and I hate math. The formula for mortgage
qualification is pretty simple though. We calculate affordability
based on maximum monthly mortgage payment which lenders call PITI
(pity) or Principal (amount of loan), Interest, Taxes and Insurance.
gross monthly income
X 40%
less monthly debt
equals qualified PITI
To calculate the maximum mortgage amount you divide the final number
by .00X. X=interest rate.
So a gross monthly income of $1000
with monthly consumer debts of $100
Interest rate of 5%
1000
x .40
________
400
-100
_________
300
300/.005 + $60,000
My borrower qualifies for a loan amount of $60,000.
Reducing the principal would lower the payment much more than
lowering the rate. That is what a partial claim does.
BTW this is the easy method. Some lenders use more than one
percentage and calculate debt and housing ratios separately, but for
the most part one ratio works fine.
Sorry if this is wonky. I explain it much better in a classroom than
I can in an online group.
Jennifer
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