Applying for a mortgage can be stressful, even if we try to make it as easy as possible. Then there is a new language to learn! Not really a new language but lots of new terms or abbreviations that may not make sense to you! Here are some of the terms you may want to know before you apply – or at least while you are in the process!
- FICO – this is another term for your credit score. Your credit score can affect many things from your interest rate to the mortgage program you use. The higher your score the better.
- LTV – this is simply your loan to value. It can be quick to calculate – you can divide your loan amount into the sales price (or home value for a refinance). The lower your loan to value, the better your mortgage rate. If your LTV is under 80%, you will not have mortgage insurance.
- DTI – this is your debt to income. We will calculate your DTI to determine what you can qualify for in a mortgage payment. Ideally you want your DTI to be under 43-45%. We take your monthly payments on your installment loans, housing and credit cards and divide it into your gross income. One example is if your housing, car loans, student loans and credit card payments equal $4000/month and your income is $10,000/month, your DTI is 40%.
- PMI – private mortgage insurance. Conventional loans with an LTV over 80% will require mortgage insurance. The amount will vary based on your down payment and credit score.
- MIP – this is FHA’s equivalent to PMI – called mortgage insurance premium. FHA requires an upfront MI and a monthly MIP payment. FHA requires the monthly payment for the life of the loan in many cases.
- PITI – your monthly payment is called PITI (principal, interest, taxes and insurance). If you have an association fee (HOA) or mortgage insurance, it gets included in your payment for qualifying.
- ARM – An ARM is an adjustable rate mortgage. This used to be more common than it is now – with fixed rates as low as they are, very few people are using adjustable rate loans. The interest rate will adjust up or down depending on the index it is based on.
- LE – loan estimate – this is given out when you start your loan application and have a property – it details all the costs of your loan and shows your payment. It replaced the good faith estimate.
- CD – closing disclosure – this is given out at least three days prior to closing. It must be signed by the borrower at least three days prior to closing unless it is delivered over 7 days prior to closing. If anything changes such as the APR by more than .125%, the CD must be reissued and signed again.
- LO- loan officer – your loan officer will be in contact with you through most of your mortgage transaction. They may have an assistant or a processor that also works with you. The LO will answer your questions and work with you to get the best mortgage for you.
As you go through your loan process, you will hear these terms more than once – if you ever are confused by the lingo or what is being said, make sure you ask questions! We deal with the language on a daily basis and sometimes don’t think about what we are saying!! I try to make sure you understand what is going on as it’s an important process and involves a long time period in your life! A 30 year mortgage lasts a long time! You want to make sure you understand the process and what you are paying for!! Remember to ask questions if you don’t understand what is going on!
Leslie Vanderwerf, NMLS ID#335509, Cross Country Mortgage LLC, An Equal Housing Lender, NMLS#3029 – Email – Website
