FAQAs, is not a typo. FAQAs are Frequently Asked Questions Answered. I should probably file for a copyright on that acronym. But anyway, here are 5 real estate FAQAs my clients at Pleasant Valley Real Estate want to know when purchasing a house. Following the questions are my answers.
1. What is a Pre-Approval Letter?
A pre-approval letter is issued by a lender, such as a bank, and says that the lender has qualified your ability to pay the mortgage, property taxes, and homeowner’s insurance (otherwise referred to as PITI) of a particular property. They have based this qualification on the income you stated in your most recent tax returns vs. your debt, which includes the minimum monthly payment you are required to make on unsecured or secured loans.
2. Why do I need a Pre-Approval Letter?
It assures the seller that you’re the real deal. More importantly, it tells you what you can afford.
3. What is PITI?
Principle, interest, taxes, and insurance (see #1). This acronym describes part of the formula a bank uses to decide what they will loan you. The PITI you can afford is based on the ratio of your income to your debt. 33% of your gross monthly income is what the bank allows for a monthly payment. In addition, your monthly debt (including your consuming debt, i.e. credit card debt) can’t exceed more than 38% of your gross monthly income.
4. What is Monthly Revolving Debt?
Monthly revolving debt includes car payments, student loans, any credit card payments of any kind, child support, and anything you are required to pay on a monthly basis.
5. What are Escrowed Taxes and Insurance?
In some cases, depending on the amount you put down, the bank may require you to pay everything in the same payment (see #3). This means you will be paying your mortgage payment, one-twelfth of your property taxes and one-twelfth of your homeowner’s insurance every month. If you put 20 percent or more down the bank will not require you to escrow (pay in advance) your taxes and insurance. You pay that yourself.
This all seems like very dry stuff, but I can assure you that these are the basics you need to know when buying a home in Vermont, or pretty much anywhere. If you have any other questions, I would be happy to provide the answers. Call me at 802-858-9193 or contact me through my website, Pleasant Valley Real Estate. We are located above the Underhill Country Store in Underhill, Vermont.
You might also like:
My blog about Low Interest Rates
My blog about Top 10 Real Estate Terms You Need to Know.