Down Payment

Private Mortgage Insurance (PMI)

Private mortgage insurance is a monthly premium required on conventional loans when the borrower puts less than 20 percent down. PMI protects the lender, not the borrower, in case of default. The cost typically ranges from 0.5 to 1.5 percent of the loan amount annually, added to your monthly payment. PMI can be removed once you reach 20 percent equity in your home, either through payments or appreciation, by contacting your lender to request cancellation.

Loan-to-Value Ratio (LTV)

Loan-to-value ratio is the amount of your mortgage divided by the appraised value of the property, expressed as a percentage. For example, if you borrow $320,000 on a home appraised at $400,000, your LTV is 80 percent. LTV is a key factor in mortgage approval and pricing. A lower LTV typically means better rates and the ability to avoid mortgage insurance, while a higher LTV indicates more risk for the lender.

Earnest Money

Earnest money is a deposit made by the buyer when submitting an offer on a home to demonstrate serious intent to purchase. It is typically 1 to 3 percent of the purchase price and is held in an escrow account until closing. If the sale goes through, the earnest money is applied toward your down payment or closing costs. If the deal falls through for a reason covered by your contract contingencies, you can usually get the deposit refunded.