PTI is an acronym for payment to income, and can be calculated quite easily. It is expressed as a ratio, and applies to the new monthly payment (which includes principal, interest and all applicable taxes) of the loan being sought. It is used by lenders to help determine whether the new payment will fit into your present budget. PTI is determined by gathering information about the anticipated loan, as well as an accurate accounting of your monthly income. Knowing your PTI is crucial in determining the likelihood of being granted credit for a mortgage or any other type of loan. According to The Federal Housing Authority, PTI for conventional mortgage loans is set at a maximum 29 percent. PTI limits vary for other types of loans depending on the loan amount.
Step 1
Write down the monthly payment of your anticipated loan.
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Step 2
Calculate your total gross monthly income. One way to do this is to take your gross annual salary and divide it by 12. The other method is to take your current gross year-to-date income and divide it by the ending pay period as represented in months. This information can be found on your latest paycheck stub. For example if your year-to-date income is $35,000 for the pay period ending July 15, 2010, the calculation would be $35,000 divided by 7.5 months, which equals $4,667.
Step 3
Write your gross monthly income down next to the anticipated new payment.
Step 4
Calculate the PTI by dividing the anticipated monthly payment by the gross monthly income. The result will be a decimal number less than 1. For example, if your gross monthly income is $5,000, and the anticipated new payment is $426, the PTI would be 0.09 or 9 percent.
Tip
Ask your loan officer for the PTI limits for the loan you are considering.
Online loan calculators, such as those available at eLoan, can help you to determine the monthly payment of any loan.
PTI is one of several lending guidelines used by lenders to determine creditworthiness.
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