PITI Calculator
Real estate is a business that requires a large amount of thought. It could be working out the fine details of a contract that you, as a buyer, are submitting to an individual property seller, bank or Loan Company, or it could be discussing with your realtor, or real estate agent, what the best way is to find out the true value of the property that you are looking at; so that you can submit an bid that reflects the market value of the property industry at the moment, as no one want to pay more than they have to for a property. Whatever the details you are looking at there is no question that all matters in real estate are tricky.
Financing Your Buy
One area of real estate that can be tricky is finance; securing the necessary funds to move into the property that you want. Imagine the situation. You've spent months and months looking for that perfect house for you and your family to move into. Money has been spent on agent fees and spare weekends have been used to hunt for that magic property. Finally your realtor shows you a property that fits the bill; in fact its perfect and the price is within the price range that you have allocated. The following steps; contract negotiation, house inspections, bid submission are all completed with the minimum of fuss and all is well and good. The final step is to hand over the money; the problem is that you only have enough in cash for a down payment; you have a great job that pays well but only so much 'liquid funds' in your account. Before you panic, take a moment to think about the options that are available to you; there are lots.
For those people who do not have a family benefactor who can help them bridge the gap between the capital they have to invest in a house and the remainder then the options available are either one of two things; a mortgage or a loan.
Mortgages And Loans
Both options are extremely feasible and a bank or loan company will be your best bet to obtaining either. Banks and loan companies are businesses that will lend you the cash to complete the deal, however they have certain criteria that they must match you against to find out if a) they will accept you for a loan or mortgage or b) how much a loan they can offer you. Banks and loan companies have varying requirements and conditions that dictate who they can loan money to and also how much they can loan a person; for instance a person earning $150,000 per year will be able to take out a larger loan or mortgage than someone earning $75,000 per year.
Although you may feel intimidated asking for a loan, from a bank or loan company, they are generally easy to secure if you meet the following criteria that, most managers use for allocating loans:
Good credit history: I.e. no outstanding loans, no previous loan defaults, no history of bankruptcy. Ability to pay off the loan: I.e. year income that is sufficient to pay off the loan repayment each month.
Once you have been accepted for either a loan or mortgage you should decide which one fits your needs the most, as a loan is different to a mortgage.
Loans
A loan is a sum of money that you borrow from a bank or Loan Company, which will have a set interest rate e.g. 11% per year. Using the interest the loan company or bank will calculate the final value of the loan, complete with interest and you will pay off that value, in equal monthly installments, until all the balance has been paid.
For example if you borrow $10,000 at a rate of 11% per year, and wish to pay the loan back over 5 years then the amount you will have to pay is:
%10000 * 1.11^5 (11% over 5 years) = $16851 (the total amount of the loan)
Monthly payment = $16851 / 5*12
= $ 281 per month
Mortgages
A mortgage is different than a loan. Possibly the more popular way to generate finance for a home a mortgage is a contract the you sign pledging the property or house that you are buying to the lender (usually a bank or loan company) as security for payment of a debt.
As a result of the mortgage the bank will lay part claim on your house or property until you have paid off your mortgage loan. Failure to make payments could result in the foreclosure of the mortgage, allowing the lender to take possession of your property. This is the first difference between a loan and a mortgage. With a loan, as long as it is not secured on your home, means that the bank can not take your house away, should
A mortgage loan is normally paid off in installments, with the person paying off the amount borrowed plus interest. Usually people choose either a 15-year or 30-year mortgage; and each are different:
15-year mortgage: this can require higher monthly payments but it allows your equity (difference between the market value of your home and the amount still owed on your home�s mortgage) to accumulate more quickly.
30-year mortgage: this requires lower monthly payments but ultimately will end up paying more for this loan in the long run as interest accumulates.
With a mortgage you make payments, which pay off the interest and the principle sum; the value of the mortgage that you took out. You pay off both until the total has been repaid in full, plus interest.
In general a loan is used if you need only a small amount of money to make up the difference between the cash you have and the amount remaining. A mortgage should be used if you need a large amount of money to finance the difference.
Long Term Debt
Most homebuyers will take out a mortgage. As a general rule the proposed housing re-payments should not exceed 29% to 35% of your gross monthly income. Also if you are considering a mortgage you should make sure that your total long-term debt would not exceed 36% to 41% of your gross monthly income. Long-term debt includes:
School loans Car loans Credit cards Alimony/child support Housing re-payments
When taking out a mortgage you should also remember that your monthly housing payment would includes more than the loan for the property. Also added into the equation are the following
Principal amount Interest incurred Property taxes to the government Fees Mortgage insurance Insurance
The above items are referred to under the term PITI (Principal, Interest, Taxes & Insurance). It is important to know what amount of PITI you will be paying each month, to keep track of your finances; to make certain that you will be able to afford each repayment.
Using A PITI Calculator
In today's real estate market you can easily calculate the amount of PITI that you pay each month, using a PITI calculator. A PITI calculator is easy to use and is free of charge, as they are on most real estate websites on the internet.
By inputting the following variables, regarding your mortgage, into the calculator you can calculate the amount of PITI you will pay each month:
· Number of years the mortgage is for
· Interest rate of the mortgage
· Mortgage amount
· Annual tax on the mortgage
· Annual insurance on the mortgage
The calculator will then return all the monthly values for:
· Principal interest
· Property taxes
· Homeowners insurance
· Total PITI payment
For example if you have a mortgage of $100,000, with an interest rate of 8% over 30 years and annual taxes and insurance of $1,000 and $300 respectively, then you will pay $842 per month in PITI.
The calculator calculates al the variables and is easy to use, saving you the time and effort in making the calculations.
