Sometimes people in every business forget that not everyone knows the lingo of their industry. Since mortgage people are immersed in the terms all day, every day, sometimes the terms come out and fly right over the heads of the borrowers that need to know them the most. So we wanted to offer a refresher course to help learn your mortgage terms, and help you understand exactly what we’re talking about.
Since most people don’t apply for a ton of mortgages, the terms can seem esoteric to them. You don’t need to know what PMI is to live your everyday life, but you’ll absolutely want to know it when you’re trying to decide between an FHA Loan or a Conventional.
It’s really one of the reasons that we like to meet every borrower face to face, and why we’ll come to you to do it. A mortgage is already a very intimidating purchase, there’s no need to make it so complicated that a layman can’t understand it.
So let’s talk about a few of the terms that you’re going to run into in your quest for a mortgage loan, a refinance, or any mortgage home loan. Learning these could save you some real money on your mortgage.
Let’s get this one out of the way. It’s probably the most important term you’ll learn. Your FICO credit score is the basis for everything in your mortgage and can really affect every financial aspect of your life. Your FICO score has an enormous impact on the mortgage that you get.
FICO score is something that you’ve probably heard of, but you probably don’t know just how large of an impact and reach it has.
Your FICO score can be all of the difference between an interest rate in the 3’s and a rate in the 5’s. This is hundreds of dollars a month that can change on your mortgage payment. This is one of the things that you need to know before you start your home search.
The higher your FICO score, the lower your rate will be.
You can raise your FICO score in a lot of ways. Paying bills on time, building credit, and generally being a responsible borrower/customer will raise your credit score. Check your credit score with the regulatory agencies and make sure that there aren’t any errors on it. Challenge the errors with the three credit bureaus: TransUnion, Equifax, and Experian. Make sure that your credit is as spotless as possible before you apply for your mortgage.
LTV, or loan-to-value ratio, is another key piece of your financial picture. The lower your LTV, the better loan you will be able to get at the end of the day. It’s the threshold you need to hit in order ti get certain loans.
You can figure out your LTV by just dividing the loan amount by the total value of the property. For an example, if you’re buying a $400,000 home and putting down $80,000, your LTV would be 80%. An 80% LTV is a great line to hit, since you can go Conventional and avoid PMI.
When we try to qualify you for a mortgage, there are a lot of different calculations that go into figuring out your affordability on this home. The basis is the debt-to-income ratio, or DTI. Your DTI is calculated by dividing your monthly bills by your monthly gross income.
Say your bills are $3,000 per month, and you make $9,000 per month. Your DTI is 33%. That is a great DTI, you generally want to keep it under 43%.
Call The Home Loan Expert Team in St. Louis at (314) 781-9700, Chicago at (773) 770-4727, Indianapolis at (317) 550-1515, Nashville at (615) 810-8555 or Birmingham, AL at (205)721-7656. You can always apply online at hero.loan for your VA Loan, and www.thehomeloanexpert.com for your other mortgage needs, and we’re also open on Saturdays and will come to you to help close your loan. We work hard to make it easy on you. Nobody gets lower rates on better loans than The Home Loan Expert, Ryan Kelley, why go anywhere else?