Online Mortgage Essentials

Principal, interest, taxes, and homeowners insurance are four critical components of any mortgage loan. Read on to learn more about these and other online mortgage essentials.

PITI

The acronym PITI references four of the most critical parts of a mortgage online: principal, interest, taxes on the property, and insurance. We've explained each of these four components in more detail below.

1. Principal - this is the original balance of your online mortgage without the addition of interest. Principal can also refer to the outstanding balance of the mortgage less interest. Interest charges are calculated according to the principal.
2. Interest - the charge borrowers pay for the use of money. With a mortgage online, interest rates are either fixed or adjustable.
3. Taxes - the property taxes charged by the county assessor. These taxes are usually included in your monthly mortgage payment, and your lender passes the money onto the government once or twice per year.
4. Insurance - homeowners insurance protects you from monetary losses in the event your home suffers a peril such as fire, vandalism, weather damage, theft, etc. Most mortgage online lenders require borrowers to provide proof of home insurance before closing on a home loan.

Down Payment

The down payment is the amount of the home's sale price that you pay in cash. You subtract your down payment from the price of the home to determine how large of a mortgage online you need to borrow. The recommended down payment is 20% of the home's value. Making a 20% down payment or larger will improve your chances of qualifying for an online mortgage and reduce your long-term borrowing costs. Borrowers with credit challenges are especially encouraged to make a substantial down payment to mitigate the high interest rates they may otherwise have to pay. If the borrower does not have at least 20% equity in the home when the mortgage is originated, the lender will automatically charge him/her for private mortgage insurance (PMI). PMI will be included as a monthly charge with the mortgage payment until the borrower achieves 20% equity in the home, either by paying down the mortgage or through the appreciation of the home's value.

Home Appraisal

Most mortgage online lenders require a professional inspection and appraisal of the home before they will issue a loan. A home inspection will review the property for flaws to prevent the need for costly repairs down the road. Similarly, an appraisal evaluates the worth of the home to gauge how accurate the selling price is. Lenders may not issue an online mortgage for a home that is priced much higher than it is worth because of the inherent risk in doing so.