Loan-to-Value
The loan-to-value (LTV) ratio is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased. The term is commonly used by banks to represent the ratio of the first mortgage as a percentage of the total appraised value of real property.
Example:
Appraised Value = $500,000
First Mortgage Amount = $400,000
Loan-to-Value = 80%
Debt-to-Income
Your debt-to-income (DTI) ratio is all your monthly debt payments divided by your gross monthly income. This number is one way lenders measure your ability to manage the payments you make every month to repay the money you have borrowed.
Example:
Gross Monthly Income = $5,000
First Mortgage Payment = $1,500
All other monthly debts = $500
Debt-to-Income Ratio = 40%
Interest Rate vs APR
An interest rate is the cost of borrowing the principal loan amount. It can be variable or fixed, but it’s always expressed as a percentage. An annual percentage rate (APR) is a broader measure of the cost of a mortgage because it reflects the interest rate plus other costs such as broker fees, discount points, mortgage insurance, and some closing costs, expressed as a percentage.
Although APR, in part, was designed to use as a tool when shopping for a mortgage, it is not always a true "apples to apples" comparison. Aside from interest rate it is always good to ask for a list of specific fees associated with getting a mortgage.
Earnest money is a deposit made to a seller showing the buyer's good faith in a transaction. In real estate transactions, earnest money allows the buyer additional time when seeking financing. Earnest money is typically held jointly by the seller and buyer in a trust or escrow account.
Earnest Money Deposit
Fixed Rate Mortgage - A mortgage loan with an interest rate that does not change over the term of the loan.
Adjustable Rate Mortgage (ARM) - A mortgage loan with an interest rate subject to change over the term of the loan. The interest rate is tied to the performance of a specified market rate.
Fixed Rate vs. ARM
The paying down of principal over time. In a typical mortgage loan, the principal is scheduled to be paid off, or fully amortized, over the term of the loan.
At the closing of the mortgage, the borrowers are generally required to set aside a percentage of the yearly taxes to be held by the lender. On a monthly basis, the lender will also collect additional money to be used to pay the taxes on the home. This escrow account is maintained by the lender who is responsible for sending the tax bills on a regular basis.