By MIKE HEAYN is a Washington Mutual Multi-Family Loan Consultant. He 310-428-1342, or e-mailed at
MANY PEOPLE WANT TO KNOW ANSWERS TO REAL estate questions when purchasing a home. Below are a few of the most commonly asked real estate questions: Q. WHAT DOES LTV STAND FOR AND WHY DOES IT MATTER? A. LTV stands for Loan to Value. A loan to value represents the ratio or loan amount to the value to the value of the property. For example, if you have a $1 million purchase and a lender tells you they will lend a 90 percent LTV based on purchase price or appraised value, they are saying they will give you a $900,000 loan if you qualify.
Q. What is a debt to income ratio and how do I know what mine is?
A. A debt to income ratio tells a lender how much of your gross income can be used to pay the mortgage. If you had a 50 percent debt to income ratio, all of your debts including a mortgage payment would be totaled. That percentage plus a mortgage would have to total 50 percent or less giving you a 50 percent debt to income ratio.
Q. WHAT IS A FICO SCORE AND WHAT IS A CREDIT REPORT? A. FICO is actually the generic name for a credit score. There are three credit Bureaus – Experian, Equifax and Trans Union. They gather financial data on you and use a series of mathematical equations to generate a credit score. Scores range from 400-850, with the higher scores representing better credit.
Q. WHAT IS ESCROW AND WHY DO I NEED TO USE ESCROW? A. Escrow is a neutral third party. When you are dealing with a large amount of money, you want to make sure there is someone who has no interest in either side of the deal. Escrow handles real estate transactions. Most states require an escrow for a real estate transaction.
Q. WHAT IS TITLE INSURANCE AND WHY IS IT NEEDED? A. Title insurance protects you from the past. It makes sure that no makes a claim against your property and if they do the title company is responsible. Lenders require it so they are protected.
Q. WHAT IS PMI AND HOW DO I AVOID IT? A. Private mortgage insurance is primarily for lenders protecting them from a default. It is needed in most states if less than 20 percent is put down on a property.
Q. WHAT DOES IT MEAN WHEN SOMEONE SAYS PITI? A. This means principal, interest, taxes and insurance. On the residential side, most lenders want all four of these paid monthly at the same time. However, lenders stayed away from this philosophy recently with the advent of interest only loans for homeowners.
If you have a question, make sure you ask your real estate agent or loan officer. People working on a real estate transaction are there to help you. Make sure you get clear answers before signing any documents.
Originally published in the Santa Monica Daily Press print edition on October 3, 2007. Read the original PDF.