PITI
- Your monthly mortgage payment: Principal + Interest + Taxes + Insurance.
- Lenders look at PITI-to-income, not just principal+interest—taxes/insurance can be 10–30% of the payment.
- Simple comfort rule: target PITI is ~25–30% of gross income.
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Home BuyingBasics
Short, friendly explanations with rules of thumb. Start with PITI, PMI, and Closing Costs. Use the search box or glossary nav to jump around.
PMI (Private Mortgage Insurance)
- Extra monthly insurance when your down payment is <20% on a conventional loan.
- Usually drops off when your loan-to-value (LTV) hits 80%.
- Ways to avoid faster: bigger down payment, or principal prepayments / home appreciation.
LTV (Loan-to-Value)
- How much of the home is financed: LTV = loan amount ÷ home value.
- Lower LTV is safer for lenders → may qualify for better rates and no PMI.
- Aim for ≤80% LTV to avoid PMI.
DTI (Debt-to-Income)
- Monthly debts ÷ monthly gross income.
- Conventional approvals often prefer DTI ≤43% (lower is better).
- Paying down small debts can improve approval odds and rates.
Closing Costs
- One-time fees to buy a home: lender, title, appraisal, escrow/prepaids, recording, etc.
- Conservative estimate: budget 2–3% of purchase price (varies by market).
- Sometimes sellers offer credits—ask your agent/lender.
Points (Discount Points)
- Pay upfront to lower your interest rate (e.g., ~0.25% rate drop per point).
- 1 point = 1% of loan amount. Worth it if you'll keep the loan long enough to break even.
- If you'll move/refi soon, points often don't pay off.
APR vs. Rate
- Rate = interest only.
- APR = interest + fees, annualized. Better for apples-to-apples loan comparisons.
Pre-Approval
- Lender verifies your credit, income, assets, and debts.
- Strengthens offers and reveals your realistic price range before shopping.
Escrow
- Monthly set-aside for property taxes and insurance collected with your payment.
- Reduces big annual lump sums; some loans require it.
Earnest Money
- Deposit with your offer to show seriousness (often 1–3%).
- Applied to your down payment/closing at settlement (usually refundable per contingencies).
Appraisal
- Independent value opinion for the lender.
- If appraised value < purchase price, you may need to re-negotiate or bring extra cash.
Inspection & Contingencies
- Finds issues and gives you options: repair, credit, or walk away within contingency window.
Rate Lock
- Reserve today's rate for a set period (e.g., 30–60 days).
- Longer locks may cost more; extensions can also cost.
HOA/Condo Fees
- Monthly association fees for shared services (maintenance, amenities, insurance portions).
- Include these in PITI-to-income when judging affordability.