First Time Home Buyer: Understanding Mortgage Terms
Website design By BotEap.comYou are buying a house. Picture this… you’re sitting at a loan officer’s desk and they tell you that if you want to buy a home your LTV must be 96.50% and your D/P must be 3.5%, your rate is of 5.00% and its APR is 5.752% with PT of 1.00% and a Loan origination fee of 1.00%. With all that, your PITIMI (piti-me) payment will be 1,100.00 per month.
Website design By BotEap.comDo you understand anything that was just said? Maybe some of you do, but for most of us who don’t lend, this can be a big jumble of acronyms and abbreviations that don’t make any sense. So here it is… the summary of the 5 most used loan terms.
Website design By BotEap.com1. PITIMI Payment (piti-me): This is the total combined payment of your mortgage. Pmajor, meinterest, Taxes, mesure, & METERhotel mesure
Website design By BotEap.com2. MI – Mortgage Insurance – Contrary to popular belief, this is not your Homeowners Insurance. Mortgage insurance is an insurance payment that you pay for your lender. It allows banks to make loans to people with a lower down payment amount and the customer pays insurance to cover their risk for the loan. If someone defaults on their loan and the lender has to sell the property, the insurance will cover any gap in the amount it collects.
Website design By BotEap.com3. H/O – Homeowner’s Insurance. This is your insurance policy. The insurance you chose to cover your home against disaster, fire and theft so you can get your money back if something happens to your property or your possessions inside.
Website design By BotEap.com4. LTV – Loan to Value. This is the percentage that is calculated from the amount of your loan to the value of the home. If your home is worth $100,000 and your loan is $80,000, then your LTV is 80%
Website design By BotEap.com5. APR – Annual Percentage Rate – This is not the rate on which your payment is calculated. Your mortgage payment will always be calculated based on the interest rate. Your APR is what banks use to represent the true cost of your loan. If you have a lot of fees associated with your loan, your APR will generally be much higher than the interest rate, if you don’t have a lot of fees to pay, then your APR will be closer to the interest rate on your loan. When comparing loan products, it’s best to compare their APR rather than the interest rate.