Question

PITI is typically quoted on a monthly basis and compared to a borrower's monthly gross income by means of computing the individual's front-end and back-end ratios, which are used to approve mortgage loans. Generally, mortgage lenders prefer PITI to be equal to, or less than 28%, of a borrower's gross monthly income.

Example: If the lender requires a debt-to-income ratio of 28/36, then to qualify a borrower for a mortgage, the lender would go through the following process to determine what expense levels they would accept:
Using Yearly Figures:

Gross Income of $45,000
$45,000 x .28 = $12,600 allowed for housing expenses, which would include the principal payment, interest, taxes and insurance.
$45,000 x .36 = $16,200 allowed for housing expense plus recurring debt. The recurring debt would be such things as student loan payments, revolving credit payments, and car payments.
Using Monthly Figures:
Gross Income of $3,750 ($45,000/12)
$3,750 x .28 = $1,050 allowed for housing expense (PITI)
$3,750 x .36 = $1,350 allowed for housing expense (PITI) plus recurring debt.
Do you consider such guidelines too restrictive for an individual to be able to qualify for a mortgage? Explain fully your rationale for your stated position. (You may want to calculate your overall "PTIT" percentages.)

The question is only an opinion:

Simply by providing your opinions to the PITI Rule.

Answer 1

This question can be answer by comparing this ratio with debt service coverage ratio.

Debt service coverage ratio is the ratio of debt to net income. This must ideally be more than 1. Here, net income is used for calculating this ratio and so this ratio can ly between 1.2 to 1.5.

But when it comes to PITI Ratio, gross income is used to calculate the ratio. And so 28% of net income only can be for housing is reasonable because there might be other debt like car loans and that overall ratio is 36% . After which, tax expenses, depreciation and amortization expenses are also present in any company which is dedected from the gross income. It depends on the other expenses and so varies from company to company. It is conservative to a lighter extent, however it's reasonable as well considering other expenses.