Question: What is PITI?

Answer: PITI is the mortgage payment. You can think of it as a list including principle, interest, taxes, and insurance. Those are the components of most mortgage payments.
Principle - You borrowed money and every month you pay some of it back. The money that goes to principle reduces how much money you owe. It's how you pay down your mortgage.
Interest - It costs money to borrow money so every month you pay the lender for the use of that money. Whether or not that interest rate changes or how it is amortized was all spelled out in the beginning, before you completed the loan agreement by closing on the property. Amortized refers to how long it would take you to pay off the loan by making regular monthly payments. Most mortgages now are amortized over 30 years.
Taxes - Your lender will want to make sure the taxes are paid on the property - mainly because a tax lien would take precedence over a mortgage. This means if you did not pay your taxes and your mortgage, the taxes would be paid first in a procedure against you. The lender will collect from you monthly and pay your quarterly tax bills.
Insurance - This refers to one, possibly two, types of insurance. First, the lender wants to know that your property is insured. For a single or multi-unit building, the owner will have hazard (also known as homeowner's) insurance. A buyer will secure one year's insurance prior to the closing. The lender will collect monthly to make sure that when the bill is due again, they can pay it. For a condo, the insurance is the master insurance paid through the condo fee. A lender may also require HO6 or interior insurance. That would be handled much like the insurance on a single family or multi unit home.
Also, the lender may have required that the loan be insured. If  a buyer's down payment is less than 20% of the purchase price they will have to pay mortgage insurance or do a loan program that addresses the situation otherwise. This is often called private mortgage insurance, or PMI, but actually that is the name of a company that offered it. It is correctly called mortgage insurance or MI. If you are paying mortgage insurance it will part of your mortgage payment. 

Question: There are two of us buying together. Which credit score will the bank use?

When people ask this they are usually hoping that the answer will be in their favor. They want to know if the lender will average the scores or use just one? They would like to hear the lender will use the higher one or even the highest possible one.

Everyone has three credit scores, one from each of the three major credit reporting bureaus: Experian, TransUnion, and Equifax. The lender will take the middle score that each person has, not the average, but the one in the middle of the three. Now each person has one credit score and the lender will take the lower of the two. 

So if Borrower A has three scores – 680, 700, and 710 – and Borrower B has three scores – 820, 780, and 800, the lender will have 700 for Borrower A and 800 for Borrower B. The credit score used for the joint mortgage application will be 700, because it is the lower of the two middle scores. 

Sometimes if one of the borrowers has a very low score, the other borrower might try to buy alone. This can only work if that borrower can support the mortgage on their own income. If the lender is not taking into consideration a borrower’s score, the lender won’t use the income either.

Question: Does [Name of Program] accept your certificate?

This question comes up fairly often from someone who is doing a  particular mortgage program, a down payment assistance program, or some other affordable housing opportunity. For two of the programs I can give an unequivocal “yes”. Our certificate is given through our approval with Citizens’ Housing and Planning Association(CHAPA), a non-profit umbrella organization for affordable housing and community development activities in Massachusetts. The certificate we award to participants who complete the workshop is definitely accepted for mortgages with Mass Housing and with Massachusetts Housing Partnership. 

For anything else, like a down payment  assistance program, I am reasonably sure that our certificate is precisely what the buyer is supposed to get. Here is the thing, though. I cannot answer for someone else. I always suggest to the buyer that they check with [Name of Program] to see if they do in fact accept our certificate. 

Just as you might not want to check with your credit card company to see if a certain store would take a particular card, it is best to check with the entity making the decision. In that case, you would check with the store itself. At best I can only tell someone I expect that program to accept our certificate, but to find out for sure, it is best to check directly with the program.

Question: How much money in closing costs will we need after the closing?

Answer: My first answer to this question was that you don't need to pay closing costs after the closing. You pay them before or at the closing.

While that answer is correct, there is another way to look at it. The woman asking the question may not have had the best vocabulary to get the right answer and that is often the case. She wanted to know how much money she and her husband would need to have in the bank after the closing. She wanted to now how much they would need in reserves. Reserves are not actually closing costs, but they may be a requirement of the loan program you are using. Particularly if you are buying a multi-unit property, your lender does not want to know that you completely bottomed out all of your available funds to make the closing happen. They really want to know that you have enough money to make the mortgage payment, especially that first payment. They want to know you have some money for emergency repairs.

To find out if you will be required to have reserves and how much, ask your loan originator as you are considering different loan programs. Most of them will tell you and disclose that amount to you, but occasionally someone in the workshop tells me they found out they need reserves but did not know initially. Ask. Ask if you will need reserves and how much will you need.

Questions Answered

Starting a new feature today. Approximately once a week, I'll answer a question that has come up in one of the workshops (or in the process of registering for a workshop). I realize I frequently answer the same questions and even some seemingly unique questions. First up will be a question about closing costs.

June workshop - June 27& 28

Our June workshop has been changed to the weekend of June 27 & 28. There is still room in the class. Please email Ellie O'Leary to get the information sheet and the registration form.

June weeknight workshop

We are receiving registrations now for the rare weeknight workshop, this one meeting at the Newburyport Bank on June 16 & 17 and finishing on June 23 & 24. For more information and the registration form please email Ellie O'Leary.

Mad Hatter Fundraiser in Newburyport

Ovarian Cancer Awareness at the Mad Hatter Fundraiser

Mad Hatter Tea Party

Glenn's Restaurant & Cool Bar

44 Merrimac Street, Newburyport

Sunday, June 14, 2015

1:00 - 3:00 PM

For more info check here. 

Next Workshop

We still have room in our next workshop which will meet in Newburyport on May 16 & 17 from noon to 5 p.m. Fee is $70 per household. Email Ellie O'Leary at EOLeary@coastalhb.org to receive the information sheet and the registration form, with instructions for online payment.