It is for this reason that I want you all to know what our terms mean! Now some may differ from lender to lender but for the 8 years I have been in lending these are the terms that I use daily.
1. PITIMI (piti-me) - This is an abbreviation that describes a persons total mortgage payment. P = Principal, I = Interest, T = Taxes, I = Insurance, and the MI = Mortgage Insurance. Generally when you buy a home you will have a PITIMI payment, there are exceptions but we will get into those later.
2. MI (mortgage Insurance) - I figured sense we talked about this one above I might as well explain a bit what MI really is. Contrary to belief this does not benefit you at all! Mortgage insurance is just that, insurance for your mortgage loan. The financial institution that you get your mortgage from will have an insurance policy put on your loan in case you default on your loan and they have to sell your property. The MI will help them recover any extra amount that they do not get from the sale of your home in order to cover the portion that the lent to you. So how can you avoid mortgage insurance? Well there are two options: Option 1 - put down at least 20% when you purchase the home, this will mean that your mortgage loan amount will be 80% of the purchase price which means you are no longer a risky loan. OR Option 2 - Put down 10% when you purchase the home and get 2 loans, one 1st mortgage for 80% LTV (we will explain that one next) and a 2nd mortgage for 10%. By doing option 2 your 1st mortgage is not considered risky.
3. LTV & CLTV (Loan-to-value & Combined-loan-to-value) - these two work together. The simplest way to explain the two is by breaking each one down. First LTV - If you divide your loan amount by your purchase price and multiply it by 100 you will get your LTV percentage (or the amount of loan vs. purchase price). The CLTV can be a bit more difficult but not much. The difference with the CLTV comes in if you have 2 mortgages during a purchase. If you buy a home and put 10% down and have a 2nd mortgage for 10% then your first mortgage LTV is 80% (the remaining after your down payment and your 2nd mortgage) But your CLTV is 90% because you combine the value of any loans on the property and then divide it by the purchase price and multiply by 100.
4. D/I (debt-to-income) - I talk about the D/I a lot during the 8 steps to home ownership but for a quick recap your D/I is calculated using your gross monthly income and your minimum monthly credit payments (just things that show on your credit report). Your D/I is very important because each bank has guidelines for the Maximum D/I a person can have with a mortgage payment included in it. If you are over their limits then you will not be able to buy the home in the price range that puts you over. To figure your D/I all you have to do is divide your minimum monthly credit payments by your gross monthly income (before taxes) and multiply your answer by 100 this will get you your D/I in a percentage.
5. FRM vs ARM - FRM or Fixed Rate Mortgage and ARM or Adjustable Rate Mortgage are two different types of loans that you can get. The FRM is just what it sounds like, this mortgage offers you an interest rate that will not change during the life of the loan and a mortgage payment that should stay right around the same, but never more then started with (UNLESS YOUR TAXES OR INSURANCE GO UP). The ARM is an adjustable rate mortgage generally where your interest rate is first locked for 1, 3, or 5 years and after the first initial lock can go up or down each year after that. Your payments will adjust with the ARM and are not set in stone.
Well there is the first lesson in Mortgage terms. I will go over some more in a while but I want to give you a rest first!
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