Mortgage terms to know
Transcript: Mortgage terms to know
When you’re buying a home, the mortgage process has its own vocabulary. In this video, we’ll share some of these important terms with you.
Knowing them before you get started will help you better understand the information that’s being discussed throughout your own mortgage process.
The first step in the home buying process is typically the prequalification, which is an initial review of your mortgage application to determine how much you can afford to borrow. Most realtors prefer that you get prequalified before you start shopping so they know you can afford the homes you’re considering and have financing options in place.
Another term is P I T I, an acronym for principal, interest, taxes, and insurance the four components of a typical monthly mortgage payment.
The first component is Principal. This is the amount of money you’re borrowing.
Interest is the cost of borrowing that money, which is charged by the lender.
Taxes. This is the monthly amount required for your property taxes.
Insurance. This is the monthly payment for your home owners’ insurance premium.
PMI stands for Private Mortgage Insurance. It’s required if your down payment is less than twenty percent of the home’s value. The monthly premium amount would be added to your monthly loan payment. Some lenders may offer lender paid mortgage insurance options.
Escrow. This is a separate account set up by the lender to hold the money to pay your property taxes, required if you put less than twenty percent down.
The Debt to Income ratio, or D T I is the percentage of your gross income needed to pay your debts like housing payments, car payments, credit card payments and other recurring expenses. It helps your lender evaluate your ability to afford the monthly mortgage payment.
L T V stands for Loan to Value. The ratio of the amount of money borrowed over the value of the home expressed as a percentage. The difference between these two numbers is the amount of your down payment or equity in the home. To calculate your L T V, divide your loan amount by the home’s appraised value or purchase price, whichever is less.
The Loan Estimate, or L E, is a disclosure you get after applying for a mortgage. It explains the terms of the mortgage and includes information like the estimated interest rate, monthly payment, and total closing costs for the loan.
And finally, there is the Closing Disclosure, or C D.
This disclosure gives you the final details about your mortgage terms, projected monthly payments, and final fees and other costs.
Familiarizing yourself with the mortgage terms is a smart first step to the mortgage process. Check out the other DCU mortgage videos for additional information. And remember, DCU loan officers are always here to help you with any questions you may have along the way. For more information, call one eight hundred three two eight eight seven nine seven, go to DCU dot org backslash mortgage, or a DCU branch.