glossary

Helpful Definitions

PITI: Monthly payments including Principle, Interest, (property) Taxes and (homeowner’s) Insurance

Impound Account: An impound or escrow account is an account that is set-up to pay your property taxes and homeowners insurance for you when they are due. You will pay 1/12 of your annual insurance premium and 1/12 of your annual property taxes with your mortgage payment. The positive is that you do not have to worry about having the money on hand when these come due. The negative is your monthly payment is higher. FHA, VA and USDA loan require you to have an impound account. On Conventional loans you have the option to have an impound account or not.

APR: Stands for Annual Percentage Rate and represents the actual yearly cost of your loan, averaged over the full term of your loan. You can determine your

Debt-to-Income: Your debt-to-income (DTI) ratio compares your debt to your income. You can calculate your DTI by dividing your monthly recurring debt, for example, your auto, student loan and the minimum monthly payment on your credit cards, by your gross income.

Mortgage Insurance: Mortgage Insurance protects the lender if you default on your loan. On a Conventional loan, your lender will require you to have Private Mortgage Insurance (PMI) if you put less than 20% down on your home loan. FHA and USDA require mortgage insurance on all loans. You will have an upfront fee that is typically added to your base loan amount or paid at closing and a monthly cost that is included in your payment. VA loans charges an upfront funding fee on some loans but does not charge a monthly cost as do FHA and USDA loans. The amount of the up-front fee is determined by a Veteran’s disability status, military service, whether it is the first VA loan or subsequent VA loan and whether you are purchasing a home or refinancing.