Question 1

How much house can I afford?

Accepted Answer

A common guideline is that your total monthly housing payment (principal, interest, taxes, insurance) should not exceed 28% of your gross monthly income, and total debt payments should not exceed 36%. For example, with a $100,000 household income, aim for a housing payment under $2,333/month. Lenders may qualify you for more, but staying within these ratios reduces financial stress.

Question 2

What is PMI and when can I remove it?

Accepted Answer

Private mortgage insurance (PMI) is required by conventional lenders when your down payment is less than 20% of the home price. PMI typically costs 0.5% to 1.5% of the loan amount annually. You can request PMI removal when your loan-to-value ratio reaches 80%, and lenders must automatically cancel it at 78% LTV based on the original amortization schedule.

Question 3

Is a 15-year or 30-year mortgage better?

Accepted Answer

A 15-year mortgage has higher monthly payments but saves dramatically on total interest (often 50-60% less) and typically offers a lower interest rate. A 30-year mortgage has lower payments, providing more cash flow flexibility. Choose 15-year if you can comfortably afford it; choose 30-year if you need lower payments or want to invest the difference elsewhere.

Question 4

How much does one percentage point in interest rate affect my payment?

Accepted Answer

On a $300,000 mortgage, each 1% increase in interest rate adds roughly $175-200/month to the payment and over $60,000 in total interest over 30 years. For example, going from 6% to 7% increases the monthly P&I payment from approximately $1,799 to $1,996.

Question 5

Should I pay points to lower my interest rate?

Accepted Answer

One discount point costs 1% of the loan amount and typically reduces the interest rate by 0.25%. On a $300,000 loan, one point costs $3,000 and saves about $44/month. You break even in approximately 68 months (5.7 years). Paying points is worthwhile if you plan to stay in the home longer than the break-even period.

Question 6

What is included in PITI?

Accepted Answer

PITI stands for Principal, Interest, Taxes, and Insurance. It represents your total monthly housing cost. Principal and interest are your loan payment; taxes are property taxes (often escrowed monthly); and insurance includes homeowners insurance and PMI if applicable. Lenders evaluate your PITI when determining loan approval.

Loan Amount	$280,000.00
Down Payment (20.0%)	$70,000.00
LTV Ratio	80.0%
Principal & Interest	$1,733.12
Property Tax	$320.83
Homeowners Insurance	$125.00
Total Monthly Payment	$2,178.96
Total Interest Over Life of Loan	$343,924.57

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