Qualifying Ratios

Qualifying Ratios and Mortgage Underwriting ## Why Texas Property Taxes Change Everything Standard mortgage qualifying ratios are the same nationwide, but Texas's property tax burden is among the highest in the nation — typically 2.0%–2.8% of assessed value annually, compared to California's Proposition 13-capped rates near 1.0%–1.2%. This single factor dramatically affects how much home a Texas buyer can qualify for and is a critical distinction for Texas broker exam purposes. Concrete example: | Factor | Texas (Plano, TX) | California (San Jose, CA) | |---|---|---| | Home price | $500,000 | $500,000 | | Annual property tax rate | 2.5% | 1.1% | | Annual property taxes | $12,500 | $5,500 | | Monthly tax component | $1,042 | $458 | | Monthly PITI impact | Much higher | Much lower | Same price, same loan, same insurance — but the Texas buyer's PITI is ~$584/month more due to property taxes alone. This can push a Texas buyer over qualifying ratios that a California buyer at the same price point would easily clear. --- ## The Two Key Qualifying Ratios ### Housing Ratio (Front-End DTI) Formula: Monthly PITI ÷ Gross Monthly Income - PITI = Principal + Interest + (Property) Taxes + Insurance (hazard insurance + HOA if applicable) - Benchmark: 28% for conventional; FHA allows up to 31% (sometimes higher with compensating factors) Texas example: - Gross monthly income: $8,500 - 28% housing ratio threshold: $8,500 × 0.28 = $2,380 max PITI - $400,000 home at 7% rate → P&I ≈ $2,661/mo - Texas taxes at 2.5% → $10,000/yr → $833/mo - Insurance → $150/mo - Total PITI → $3,644/mo - Housing ratio → $3,644 ÷ $8,500…