01Problem
A first-time buyer (31% of September 2026 existing-home sales) is told they are “approved” for a payment the lender will book, then finds PITIA plus repairs eating most of take-home pay. NAR’s September 2026 median existing home is $417,500. On that price with 5% down at the week-of-October-29-2026 Freddie Mac PMMS 30-year rate of 7.24%, modeled PITIA is about $3,390 a month before maintenance — 40.7% of a $100,000 gross income, above the CFPB Home Loan Toolkit’s 28% housing rule of thumb.
02Intake
- Gross monthly income of every occupant on the loan (W-2, 1099, two years of returns if self-employed).
- Recurring debts the lender counts: auto, student-loan payment on the credit report (or 0.5%/1% of balance if deferred), card minimums, child support, alimony, personal loans. Groceries, utilities, and current rent are not counted debts.
- Cash after closing: down payment + closing costs + 2–6 months of full PITIA as a reserve. Gift funds listed separately (donor, relationship, “no repayment” letter).
- Target county/ZIP, occupancy, HOA/condo name. Credit scores (Classic FICO if known), first-time status, VA eligibility, 80% AMI test for HomeReady/Home Possible.
- Bindable homeowners-insurance quote for this address. County millage / last year’s tax bill on comparables.
- Draft pre-approval (amount, product, rate, expiration) and any Loan Estimates already issued.
03Playbook
- 01
Treat the pre-approval as a credit ceiling, not a budget. CFPB Ask CFPB en-118: focus on a mortgage that is affordable given other priorities, not how much the lender will qualify. Ask for the DTI used (front-end vs back-end) and the product (DU conventional, FHA, VA, USDA). Write the user’s ceiling first with the CFPB toolkit 28% housing test, then compare it to program DTI caps.
- 02
Build true monthly housing cost as PITIA + maintenance, not P&I. PITIA = principal + interest + property taxes + homeowners insurance (and flood if required) + mortgage insurance (PMI/MIP/annual USDA guarantee) + HOA/condo dues (including special assessments). Add a maintenance reserve. The CFPB toolkit (August 2026 print) requires budgeting repairs and utilities; Fannie DTI does not count maintenance.
- 03
Price P&I from a locked or PMMS rate. (M = P \cdot \frac{r(1+r)^{n}}{(1+r)^{n}-1}) where (r) = annual rate/12 and (n) = 360. PMMS week of October 29, 2026: 30-year 7.24%, 15-year 6.60%, for 20% down and excellent credit. A 5%-down 700-FICO buyer pays more after LLPAs and PMI; use the LE’s note rate when one exists.
- 04
Taxes from the county, insurance from a bindable quote. ACS effective property-tax rates cluster near 0.9% of value; use that only until county millage is on the file. ICE Mortgage Monitor (September 2026, Q2): average mortgaged single-family insurance $209/month (~$2,508/year). Florida, Louisiana, and wildfire metros run far above that. A house the insurer will not bind is not affordable.
- 05
Add PMI/MIP honestly. Conventional PMI continues until HPA cancellation. FHA annual MIP on >95% LTV loans ≤$726,200 is 0.55% of base loan for the life of the loan (ML 2023-05). VA has no monthly MI (funding fee instead). USDA FY 2027 annual guarantee is 0.35%. Lender-paid MI is baked into the rate and is not cancellable under HPA — the exit is a refinance.
- 06
Run front-end and back-end DTI on the same income. Front-end = PITIA / gross monthly income. Back-end = (PITIA + counted debts) / gross monthly income. Program caps: Fannie B3-6-02 (04/02/2025): manual 36%, up to 45% with Eligibility Matrix score/reserves, DU 50%. FHA manual 31/43, up to 40/50 with two compensating factors. VA 41% plus residual income (38 CFR 36.4340 / VA Pamphlet 26-7 Ch. 4). USDA typical 29/41. Qualified Mortgage ATR is price-based, not a 43% DTI cap (mandatory October 1, 2022). A DU Approve at 48% DTI is legal and still a budget failure if take-home cannot cover food, childcare, and a water heater.
- 07
Keep cash after closing. Model cash-to-close from a Loan Estimate, then require a post-closing reserve of at least three months of full PITIA (six months if pre-1978, roof >15 years, or self-employed). CFPB’s “Ready to buy” page lists repairs, furniture, and utilities as costs lenders do not underwrite.
- 08
Shop below the median if 28% does not clear. On the September 2026 median $417,500 with 5% down, 7.24%, 0.9% tax, $209 insurance, and 0.50% illustrative PMI, PITIA is $3,390. That requires $145,300 gross income at 28% housing. A buyer at $100,000 gross must cut price, raise down payment, or both.
- 09
Plan the PMI exit the day the loan closes. HPA, 12 U.S.C. §§ 4901–4902: borrower may request cancellation at 80% of original value (lesser of sale price or appraisal), with good history and current status; servicer must automatically terminate at 78% of original value on the amortization schedule if current; midpoint is the backstop. Unearned premiums returned within 45 days. FHA/VA/USDA insurance is not HPA PMI. Fannie B-8.1-04 current-value path (one-unit primary/second home): 75% LTV after 2–5 years, 80% after 5 years, borrower-initiated (BPO $190 or restricted appraisal $450 per Fannie F-1-02).
- 10
Compare four loan stacks on the same house. FHA 3.5% MRI + 1.75% UFMIP + life-of-loan 0.55% MIP vs HomeReady/Home Possible 3% down with cancellable MI and LLPA waiver at ≤80% AMI vs Fannie 97% LTV (one first-time buyer, no income cap) vs VA 0% / USDA 0%. 2026 conforming 1-unit $832,750 / high-cost $1,249,125; FHA floor $541,287 / ceiling $1,249,125. FHA MIP breakpoint $726,200. No federal first-time purchase tax credit (26 U.S.C. § 36 ended 2010). MCCs (IRC § 25) still exist via some HFAs.
- 11
Visit at commute times before the offer. Weekend-only showings hide traffic, school pickup, and noise. Add parking, transit, and HOA rental/parking fees to the monthly model.
- 12
Decision rule. If modeled PITIA+maintenance > 28% of gross or post-closing cash < 3 months PITIA or the insurer will not bind, cut the price or raise cash. A DU Approve at 48% DTI is a lender fact, not a yes.
04Checklists
First-home true-affordability check
- Pre-approval amount written down as a ceiling, with product and DTI disclosed
- Official LE in hand (not a worksheet); rate-lock Yes/No read on page 1
- PITIA built from P&I + county tax + bindable HOI + PMI/MIP + HOA
- Maintenance reserve added (planning 1% of price per year, or a local bid)
- Front-end vs CFPB 28% and back-end vs program DTI both computed
- Three months (preferably six) of PITIA left after cash-to-close
- Insurance bindability confirmed before the inspection deadline
- FHA vs HomeReady vs VA vs USDA stack compared including MIP/funding fee
- PMI cancellation date estimated (HPA 80/78 and Fannie current-value 75/80)
- Gift letter: amount, relationship, no repayment, donor not an interested party
- Commute-hour visit completed
- Hard credit pulls clustered inside 14 days across lenders
05Questions to ask
- Q01
“What front-end and back-end DTI did you use on this pre-approval, and is this a DU, LPA, TOTAL, or manual file?”
- Q02
“Please issue an official Loan Estimate from the six application items only. What note rate, PMI/MIP line, and cash-to-close did you use?”
- Q03
“What annual PMI rate is on this LE, when does HPA 80%/78% fall on the amortization schedule, and is this borrower-paid or lender-paid MI?”
- Q04
“What homeowners-insurance premium can you bind at this address, roof age, and panel type — in writing, not an estimate?”
- Q05
“What is last year’s tax bill, the millage, and whether this sale will trigger a reassessment that raises year-2 escrow?”
- Q06
“If I put 5% vs 10% vs 20% down, show three LEs so I can see PMI, MIP duration, and cash-to-close side by side.”
- Q07
“Does my income clear Fannie 80% AMI for HomeReady at this address (ami-lookup-tool.fanniemae.com), and are LLPAs waived?”
- Q08
“What post-closing reserve are you requiring, and what cash will I actually have the day after recording?”
06Red flags
“You’re approved for $X” with no PITIA, no insurance quote, and no DTI disclosed
Draining every dollar of savings to close
FHA 3.5% down sold as “cheaper monthly” without life-of-loan MIP math
LPMI described as “no PMI” (it is in the rate)
Insurance quote far below a local bindable figure
HOA dues omitted from the pre-approval
Pressure to waive inspection to “win” a house the buyer cannot repair
Weekend-only showing as the only visit
07Scripts
Application for a Loan Estimate under 12 CFR 1026.2(a)(3)(ii). Name [name], SSN [ssn], income $[monthly], property [address or county], estimated value $[price], loan amount sought $[loan], occupancy primary, 30-year fixed. Please issue official Loan Estimates — not worksheets — at (1) 5% down, (2) 10% down, (3) 20% down, each at 0 points. Disclose the PMI or MIP annual rate, cash to close, and the month the principal is scheduled to hit 80% and 78% of original value. Do not require a purchase contract. The only fee I authorize before intent to proceed is a bona fide credit-report fee.
I am shopping [address], year built [year], roof [age if known], electrical panel [type if known]. Please quote HO-3 (or HO-6 if condo) dwelling coverage at replacement cost, deductible options, and whether you will bind with this roof/panel/plumbing. I need the annual premium in writing for the lender’s escrow and my affordability model.
My lender pre-approved $[amount]. My budget for PITIA plus a repair reserve is $[lower]. I will write at a price that keeps housing at or under 28% of gross income. If the list price requires stretching past that, I will pass.
08Tools
Callable over MCP once connected. Your agent passes the inputs and gets structured results back.
true_pitia_affordability_calculatorTrue-PITIA affordability calculator- Amortizes P&I and adds taxes, insurance, mortgage insurance and HOA (PITIA); returns front-end and back-end DTI, months of reserves, the income needed at 28%, and the max price at 28% of gross income. Flags front >28%, back > program cap, reserves < 3 months PITIA.
pmi_exit_date_estimatorPMI-exit date estimator- Months until borrower-requested PMI cancellation (UPB ≤ 80% of original value), automatic termination (scheduled UPB ≤ 78%), and the current-value value needed under Fannie Mae (75% LTV after 2–5 years, 80% after 5).
program_stack_limiterProgram-stack limiter- Given the county limits you look up (FHFA conforming limit, FHA limit, 80% AMI), returns the max loan by program, FHA upfront (1.75%) and annual (0.55%) MIP on a 3.5%-down loan, and HomeReady-style income eligibility. Lookup URLs included; this tool does not fetch them.
09Formulas & rules
- P&I: (M = P \cdot r(1+r)^{n}/((1+r)^{n}-1)). 30-year 7.24%, $417,500 × 5% down → loan $396,625, P&I $2,702.99. 20% down → loan $334,000, P&I $2,276.20.
- PITIA illustration (5% down, median): tax 0.9% = $313.13/mo (replace with millage) + ICE insurance $209 + illustrative PMI 0.50% × $396,625 / 12 = $165.26 → PITIA $3,390.38. Plus 1% maintenance $3,738.30.
- Front-end on $100,000: $3,390.38 / $8,333.33 = 40.7%. CFPB 28% allows $2,333 housing. Income needed at 28%: $145,300/year. Back-end with $500 other debts = 46.7% — clears DU 50%, fails CFPB 28% comfort. Decision: do not buy at this price on this income.
- FHA MIP on median: 3.5% down; base $402,887.50; UFMIP 1.75% = $7,050.53; annual 0.55% = $184.66/month for life.
- HPA 80/78 on $400,000 loan / $421,053 original value: 80% = $336,842; 78% = $328,421. At 7.24%, five years retire only ~$22,524 of principal. Fannie current-value year 3 remaining ~$387,470 needs value ≥ $516,627 (75% LTV); year 5 remaining ~$377,476 needs value ≥ $471,845 (80%).
- CFPB toolkit (August 2026): total monthly home payment at or below 28% of gross monthly income. Six-item application triggers LE within 3 business days (12 CFR 1026.19(e)).
10State variation
- Rates: PMMS 30-year 7.24% as of October 29, 2026 (prior week 7.32%; year-ago 6.17%). FHFA 2026 CLL $832,750 (Nov. 25, 2025). FHA floor $541,287 / ceiling $1,249,125; MIP still ML 2023-05 ($726,200 breakpoint).
- QM: General QM is price-based (APR vs APOR), not a 43% DTI rule (12 CFR 1026.43). HPA unchanged. Fannie LL-2026-07 lets servicers outreach on current-value PMI; eligibility is still B-8.1-04.
- Texas: TREC 20-19 ¶5 effective July 1, 2026 — 3 days to deliver option fee/earnest money. Massachusetts: 760 CMR 74.00 (Oct. 15, 2025) bars conditioning acceptance on an inspection waiver. No 2025–2026 federal first-time purchase tax credit.
11Community tactics
- Shop below the pre-approval — Verified. CFPB en-118: qualification ≠ affordability; toolkit 28% is the Bureau’s published rule of thumb.
- Keep cash after closing because repairs start immediately — Verified as planning advice. CFPB toolkit requires budgeting repairs; three months of PITIA is this skill’s operating rule, not a statute.
- Visit at commute times — Partly verified. Sound diligence; no statute.
- “Once you pay 20% you can call and cancel PMI” — Partly verified. HPA request is 80% of original value; automatic is 78% scheduled. FHA MIP is not HPA PMI.
- “2/3 of budget is mortgage” — Verified as community pain, not a legal limit.
12Fact-check notes
- CFPB Ask CFPB en-118 — works (reviewed June 27, 2024); qualification ≠ affordability.
- CFPB toolkit PDF — works; August 2026; 28% rule of thumb.
- Freddie Mac PMMS — works; 7.24% / 6.60% week of October 29, 2026.
- NAR September 2026 EHS — works (released October 13, 2026); median $417,500, FTB 31%.
- 12 U.S.C. § 4902 — works; 80% request / 78% automatic / 45-day refund.
- Fannie B3-6-02 — works (04/02/2025); manual 36/45, DU 50%. Fannie B-8.1-04 — works; current-value 75/80.
- ICE $209/month — works via ICE September 10, 2026 Mortgage Monitor.
- Enact 0.38% PMI card — dropped as unverified; 0.50% used only as illustration.
- $52,883 broken-arm bill — not used (wrong skill; unverified).
- NBC, ProPublica, Pennsylvania Insurance Department — not cited in r2 §3.
13Tools to implement
Show the tool specifications
- True-PITIA affordability calculator. Inputs: price, down %, rate, term, tax, HOI, PMI/MIP %, HOA, other debts, gross income, cash, closing-cost estimate. Logic: amortize P&I; PITIA = P&I+T+I+MI+HOA; flag front > 28%, back > program cap, or reserves < 3 months PITIA. Outputs: PITIA, both DTIs, months of reserve, max price at 28%. Data: Freddie PMMS (https://www.freddiemac.com/pmms); CFPB toolkit (https://files.consumerfinance.gov/f/documents/cfpb_your-home-loan-toolkit_print_2026-08.pdf).
- PMI-exit date estimator. Inputs: original value/loan, rate, extra principal, current UPB and value, seasoning. Logic: HPA request at UPB ≤ 0.80 × original value; auto at scheduled UPB ≤ 0.78 × original value; Fannie current-value 75% after 2–5 years or 80% after 5. Data: 12 U.S.C. § 4902 (https://www.law.cornell.edu/uscode/text/12/4902); Fannie B-8.1-04 (https://servicing-guide.fanniemae.com/svc/b-8.1-04/termination-conventional-mortgage-insurance).
- Program-stack limiter. Inputs: county FIPS, income, first-time flag, veteran flag. Logic: look up FHFA CLL, FHA county limit, Fannie 80% AMI, USDA rural eligibility; emit max loan and monthly MI/MIP/funding-fee. Data: FHFA CLL (https://www.fhfa.gov/data/conforming-loan-limit); HUD FHA limits (https://entp.hud.gov/idapp/html/hicostlook.cfm); Fannie AMI tool (https://ami-lookup-tool.fanniemae.com/amilookuptool/).
14Sources
- 01
- 02How can I figure out if I can afford to buy a home?consumerfinance.gov
CFPB, last reviewed June 27, 2024
- 03
- 04
- 05
- 06
- 07Fannie Mae B-8.1-04, Termination of Conventional Mortgage Insuranceservicing-guide.fanniemae.com
Fannie Mae Servicing Guide
- 08
- 09
Demand evidence r2 F5×P4×S5 = 100; r1 “2/3 of regular spending budget is mortgage” (r/personalfinance)