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Mortgage Affordability Rules

A home price alone does not show affordability. Mortgage decisions depend on income, debt, rate, taxes, insurance, PMI, cash reserves, and closing costs.

9 min read Intermediate Matching quiz included

DTI connects debt payments to income

Debt-to-income ratio compares recurring debt payments with gross income. Lenders use it to judge repayment capacity.

LTV affects risk and PMI

Loan-to-value compares the mortgage amount with property value. A higher LTV may increase lender risk and can trigger mortgage insurance.

Points trade cash today for a lower rate

Discount points can reduce the interest rate, but the buyer should compare the upfront cost with the monthly savings and expected time in the home.

Escrow changes the real monthly payment

Taxes and insurance may be collected with the mortgage payment. Ignoring escrow can make affordability look better than it is.

Mortgage Affordability Rules FAQ

What is DTI in a mortgage?

DTI is debt-to-income ratio, a comparison of monthly debt obligations with gross monthly income.

What is LTV?

LTV is loan-to-value ratio, calculated as loan amount divided by property value.

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