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B3-6-03, Monthly Housing Expense for the Subject Property (12/16/2020)

This topic contains information about the following:

Monthly Housing Expense

Monthly housing expense is the sum of the following and is referred to as PITIA for the subject property:

  • principal and interest (P&I);

  • property, flood, and mortgage insurance premiums (as applicable);

  • real estate taxes;

  • ground rent;

  • special assessments;

  • 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 ObligationsB3-6-05, Monthly Debt Obligations.

Lenders must enter all components of the monthly housing expense on the loan application including subordinate financing P&I, homeowner’s insurance, supplemental property insurance, real estate taxes, mortgage insurance, association/project 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 RequirementsB3-6-04, 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.

Calculating Monthly Real Estate Tax Payment

The lender must base its calculation of real estate taxes for borrower qualification on no less than the current assessed value. 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 typically results in a reassessment or revaluation of the property and a corresponding 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 5th year after the first mortgage payment date.

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.

Recent Related Announcements

The table below provides references to recently issued Announcements that are related to this topic.

Announcements Issue Date
Announcement SEL-2020-07 December 16, 2020
Announcement SEL-2020-02 April 01, 2020
Announcement SEL-2020-01 February 05, 2020
Announcement SEL-2019-09 December 04, 2019