Applying for a new mortgage can be a stressful experience. While there may be concerns about getting approved and dealing with all of the paperwork, you also may feel anxious about the many financial terms that are floating around you. The best way to deal with this source of stress is head-on by increasing your knowledge. These are some of the top loan terms that you should be aware of before you apply for a new mortgage.

Loan-to-Value (LTV)
Your lender will have a maximum loan amount as well as a maximum limit for the loan-to-value. The loan-to-value is a percentage that is calculated by dividing the loan amount by the property value for a refinance loan. For a purchase loan, the LTV is calculated by dividing the loan amount by the lower of the sales price or the property value.

Debt-to-Income (DTI)
The debt-to-income ratio is used by the underwriter to analyze your personal debt level in relation to your income. The maximum DTI permitted will vary by lender and by loan program. This figure is calculated by dividing the total of all minimum monthly debt payments by your gross monthly income. The debt payments include the minimum amounts requires for student loans, car loans, credit loans and other types of financed accounts.

Private Mortgage Insurance (PMI)
Most conventional lenders require borrowers to pay for private mortgage insurance if the loan-to-value is greater than 80 percent. This means that you must make a 20 percent down payment or more to avoid this expense.

Mortgage Insurance Premium (MIP)
If you take out an FHA loan, you will be required to pay a mortgage insurance premium regardless of what the LTV is. The MIP is usually comprised of an upfront amount paid with closing costs and a monthly premium that is tagged onto the mortgage payment.

PITI
You may come across both P&I and PITI. The P&I payment is your monthly mortgage payment including principal and interest. In most cases, homeowners must also make escrow payments for property taxes and home insurance. PITI means that the payment includes principal, interest, taxes and insurance.

Our team at MortgageDepot is always happy to answer your questions. If you need more details about these terms or about any other aspects of your new loan, contact us today.

Contact one of our loan consultants to learn more.

 

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