Mortgage Terms & Definitions Part II

As mentioned in last weeks blog, understanding certain mortgage terms can be very important and beneficial when entering in the process of getting a home mortgage.  So this week I will expand further into essential requisites that everyone needs to know from day one.

Equity:  The amount the homeowner would receive in cash if they sold their home after all liens have been satisfied.  Therefore, it’s the value of the home minus unsatisfied liens.  Example:  Say you have a $100,000 home with a $75,000 first mortgage, a $10,000 second mortgage, and a $1,000 tax lien; you would have $14,000 in equity.

Equity Position:  The percentage of equity in a home.

Loan to Value (LTV):  The percentage of the loan amount divided by the lesser of the appraised value or sales price.  Example:  Let’s say that you have a loan amount of $200,000 and a purchase price of $250,000.  Therefore, you would have a 20% equity position in the home; or an 80% loan to value ratio.  Now let’s say that the appraised value on the home came in at $235,000.  Due to the LTV ratio being divided by the lesser of the two, now you only have a 15% equity position or an 85% LTV ratio.  If the appraised value came in at $260,000, you still only have 20% equity and an 80% LTV.

Debt to Income Ratio (DTI):  There are two types.

1. Housing Ratio (also known at front end):  This is simply the total housing payment including principle, interest, taxes, and insurance (PITI), and dividing by total gross income per month.  Note, insurance is a broad term that includes applicable hazard, flood, mortgage, and HOA dues.
2. Total Ratio (also known as back end):  This is PITI plus all other obligations divided by total gross income per month.  Note, “other obligations” include non-obligations that don’t show up on ones credit report; such as car insurance, health insurance, utilities, phone bills, cable TV, etc.

Not sure who to call or where to start?  Contact me today for a 100% free no-obligation loan inquiry analysis.

Matt Pell,  Loan Officer
Mortgage Warehouse, LLC
(239) 672-8502 – Direct Line
(239) 344-9223 – Fax
Matt@mortgagewarehouse.com
www.facebook.com/themortgagewarehouse
Company NMLS ID – 137154
Individual NMLS ID – 1018529
Better Business Bureau Rating = A+