Thursday, June 12, 2014

Learn to speak the 'mortgagese' lingo


For a first-time homebuyer, navigating the mortgage process can be difficult enough - especially if you've never heard of half the terms thrown around by your real estate agent or loan officer. They want your bank statements, credit history, W-2s and 1040 tax returns, and that's not even getting into your DTI, LTV, PMI and PITI.

But once you understand the terminology used to determine your loan approval, you will be more empowered to make the best choice for you. As a brief refresher for the acronyms mentioned above, get familiar with the following terms:
  • DTI: Your debt-to-income ratio is a critical number that can make or break your loan eligibility. As of January 2014, the DTI rate is generally capped at monthly debt payments making up a maximum of 43% of your monthly income. If your DTI exceeds 43 percent, you will likely need to focus on reducing your overall debt before refinancing or purchasing a new home.
  • LTV: Your loan-to-value ratio is another important figure determining what interest rates you can qualify for and even what loan programs you may want to sign up for. As a general rule, a loan amount totaling 80 percent or less of your home's value is a goal to strive for. If you don't have 20 percent equity in what your home is worth, you can look into programs such as FHA to qualify for a mortgage. Vertex Loan Officers can see if you're qualified for VA, FHA, Conventional and other loan programs.
  • PMI: Private mortgage insurance is often used for borrowers whose LTV is greater than 80 percent. In many cases, you can still qualify for a loan if you're willing to pay an additional monthly mortgage insurance on top of your base mortgage payment. Once you've paid down the loan enough and gained more equity, you can refinance to get rid of PMI payments. (Hint: Vertex LOs would be happy to help you refinance and eliminate your PMI!)
  • PITI: The basis of all mortgage payment calculations combines your principal, interest, taxes and insurance. Your lender will want assurance that you can safely cover the PITI payment each month given your monthly income and assets presented, in case you lose some of that income. Paying your property taxes and homeowner's insurance is mandatory and can be "escrowed," or rolled into your monthly mortgage payment, or paid separately.
For more definitions of common mortgage forms - also including GFE, TIL and RESPA - check out this slide show: http://realestate.msn.com/17-mortgage-terms-defined#1. As always, if you have questions on what any of this or other terminology means, feel free to contact a Loan Advisor or Processor at Vertex.

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