Loan-to-Value Ratio (LTV)

Appraisal

An appraisal is a professional assessment of a property's market value, conducted by a licensed appraiser. Lenders require an appraisal before approving a mortgage to ensure the home is worth at least as much as the loan amount. The appraiser evaluates the property's condition, features, and location, and compares it to recent sales of similar homes in the area. The buyer typically pays for the appraisal, which usually costs between $300 and $600.

Down Payment

The down payment is the upfront cash you pay toward the purchase price of a home, with the remainder covered by your mortgage. Down payment requirements vary by loan type: conventional loans may require as little as 3 percent, FHA loans require 3.5 percent, and VA and USDA loans offer zero down payment options. Putting at least 20 percent down on a conventional loan allows you to avoid private mortgage insurance. A larger down payment also reduces your loan amount, resulting in lower monthly payments.

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.