- What is PMI?
- PMI stands for Private Mortgage Insurance. It is an insurance policy designed to protect the lender if the borrower defaults on his/her loan. PMI is required if borrower is not able to put 20% down payment on the house (with the exception of special lending programs such as VA). PMI rate can vary between 0.58% to 1.86% depending on your credit score, LTV and DTI ratio. Check with lender to get your PMI rate.
- What is LTV?
- LTV is short for Loan To Value. It is a key measure that lenders use to determine the lending risk associated with a loan. This is calculated by dividing the mortgage amount by the appraised value of a property and is usually expressed in percentage. If you borrow $80,000 on a house that is worth $100,000 then the LTV is 80K/100K = 0.8; converting that to percentage and we have 80%.
- What is DTI?
- DTI stands for Debt to Income, another key measure banks used to assess the risk associated with a loan. This is calculated by taking all your monthly debt payments and divide it by your Gross Monthly Income and convert it to percentage. Higher ratio indicates higher risk loan as there is less money available for borrower to spend. Lenders typically want to see DTI ratio of no more than 36% with less than 28% goes toward monthly mortgage payment.
- What is PITIA?
- PITIA stands for Principal, Interest, Taxes, Insurance and Association (HOA). These are what make up a typical mortgate payment. Insurance includes Homeowner Insurance and if applicable, PMI. Association or HOA fee might not be applicable to the house you purchase but with most houses built in a subdivision these days, HOA is always required.
- What is escrow?
- In a real estate transaction, an escrow refers to the funds held in a third party trust account. In the simplest terms, it is the borrower’s money, set aside to pay for taxes and homeowner insurance. Escrow is required lender deem borrower is a high risk; if down payment is less than 20% or if borrower uses VA loan.
- What is HOA?
- HOA stands for HomeOwner Association and is usually found in communities or neighborhood with single family homes or multiple unit building such as condos. The association typically establishes and enforces the rules on the properties within their communities. They are responsible for collect the fees or dues from residents and pays for the maintenance of the common area such as gym, swimming pool, sidewalks, tennis court, basketball court… In some cases HOA fees is also paid for cable TV, Internet as well as Security Monitoring. Check with your real estate agent or seller to see what HOA covers.
- What is Extra Payment?
- Your monthly loan payment typically covers Principal, Interest and if applicable, Taxes & Insurance. That makes up the minimum monthly required payment for the loan. Extra payment is the amount you pay above the minimum payment and it goes directly toward the principal or the balance of the loan. It helps to reduce your mortgage and if you make regular extra payment, you can pay off the mortage faster.
- What is Property Tax?
- Property Tax is a tax collected by the local county on the property that you own and usually made up by various taxes and thus why sometimes it is referred to as “property taxes”. These taxes usually go towards public schools, police, fire departments… The county assessor determines the taxes on your property based on the assessed value and not the appraised value. While most states have annual property tax rate hovering around 1%, some states can have a tax rate up to 4% or more. Multiple the tax rate by your property value and divide it by 12 will give you the monthly tax amount. This number can be as high as your monthly loan payment and in some cases, be higher. Be sure to ask about tax rate as it could affect your ability to sell your property later. Do not trust the tax rate as reported by Zillow and the likes. Listing Agents tend to enter a very low number as it has a big impact on the monthly payment shown on the site and could turn off potential buyers.