Lending institutions take great pains to see that you don't get in over your head on mortgage payments --to keep you out of trouble and of course to protect their oans.

To decide what you can afford, the lender uses something known as a qualifying ratio. A typical one might be 28/33.

The first figure, 28, means that the lender will let you spend up to 28 percent of your gross monthly income on a mortgage payment. The figure covers:

• something to reduce the principal owed,
• a month's interest on the loan,
• a month's expense toward property taxes and
• homeowners insurance.

It's often referred to as PITI, which stands for "principal, interest, taxes and insurance." If you're trying to figure it roughly, it often comes out to about a week's gross pay for a monthly mortgage payment.

But then there's the second figure in that 28/33 ratio. If that's the standard used for the particular mortgage plan you're considering, 33 percent of your income must stretch to cover not only your mortgage payment but also your other long-time debt payments. That can limit the amount of your mortgage loan, if you're paying on a car (or two), student loans, and permanent credit card debts.

After both calculations have been made, lending institutions take whichever is the lower figure, for your allowable mortgage payment. How much loan that will cover depends, of course, on current interest rates. The ratio cited above is just an example, and a conservative one at that. Some mortgage lenders will bend the rules if you're making a large down payment. And different types of mortgages may use other ratio figures.

The VA, for example, is particularly liberal in this respect, and will allow as much as 41 percent for overall debt service.

Published: January 18, 1999

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