Monthly housing expense is the sum of the following and is referred to as PITIA:
principal and interest (P&I);
property, flood, and mortgage insurance premiums (as applicable);
real estate taxes;
any owners’ association dues (including utility charges that are attributable to the common areas, but excluding any utility charges that apply to the individual unit);
any monthly co-op corporation fee (less the pro rata share of the master utility charges for servicing individual units that is attributable to the borrower’s unit);
any subordinate financing payments on mortgages secured by the subject property.
Note: The monthly payment of a subordinate lien associated with a business debt secured by the subject property can be excluded from the monthly housing expense if it meets the requirements of Business Debt in the Borrower’s Name in B3-6-05, Monthly Debt Obligations.
Lenders must enter all components of the monthly housing expense on the application including other financing P&I, property insurance, real estate taxes, mortgage insurance, homeowners' association dues, and other proposed housing expenses.
If the subject mortgage is secured by the borrower's principal residence, the monthly housing expense is based on the qualifying payment required in accordance with B3-6-04, Qualifying Payment Requirements. This amount is the monthly housing expense used to calculate the debt-to-income (DTI) ratio.
If the subject mortgage is secured by a second home or an investment property, the qualifying payment amount is considered one of the borrower's monthly debt obligations when calculating the DTI ratio. The monthly housing expense in these cases represents the PITIA associated with the borrower's principal residence.
Refer to the Qualifying Payment Requirements for details on calculating the qualifying payment.
The lender must base its calculation of real estate taxes for borrower qualification (and escrow account purposes) on no less than the current assessed value. (The taxes are listed on the title commitment.) However, the lender must project the real estate taxes if one of the following applies:
For purchase and construction-related transactions, the lender must use a reasonable estimate of the real estate taxes based on the value of the land and the total of all new and existing improvements. This policy also applies to properties in jurisdictions where a transfer of ownership may result in an increase in the amount of taxes.
There is a tax abatement on the subject property that will last for no less than 5 years from the note date. For example:
for a municipality with a 10-year abatement, the lender may qualify the borrower with the reduced tax amount;
for a municipality with a 10-year abatement and
with annual real estate tax increases in years 1 through 10, the lender
must qualify the borrower with the annual taxes that will be required
at the end of the 5
The lender has the option to project the real estate taxes if the amount of taxes will be reduced based on federal, state, or local jurisdictional requirements. However, the taxes may not be reduced if an appeal to reduce them is only pending and has not been approved.
The table below provides references to the Announcements that have been issued that are related to this topic.