First Time Home Buyer – Understanding Mortgage Terms
You’re buying a home. Well picture this… you are sitting down at a loan officer 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 5.00% and your APR is 5.752% w/ PT’s of 1.00% and a Loan origination fee of 1.00%. With all of that your PITIMI (piti-me) payment will be 1,100.00 per month.
Do you understand anything that was just said? Maybe a few of you do but for most of us that aren’t in lending this can be a big jumble of acronyms and abbreviations that don’t make a bit of sense. So here it is… the down low on the top 5 most used lending terms.
1. PITIMI (piti-me) payment – This is your total combined mortgage payment. Principal, Interest, Taxes, Insurance, & Mortgage Insurance
2. MI – Mortgage Insurance – Contrary to belief this is not your Home Owners Insurance. Mortgage Insurance is an insurance payment that you pay for your lender. It allows for edges to give out loans to people with a smaller amount of down payment and the customer pays the insurance to cover their risk for the loan. If someone defaults on their loan and the lender has to sell the character then the insurance will cover any gap in the amount that the collect.
3. H/O – Home Owners Insurance. This is your insurance policy. The insurance that you chose to cover your home against disasters, fire, and theft to be able to get you your money back if something happens to your character or your possessions inside.
4. LTV – Loan- To-Value. This is the percentage that is calculated from the amount that your loan is to the value of the home. IF your home is worth 100K and your loan is 80K then your LTV is 80%
5. APR – Annual Percentage Rate – this is not the rate that your payment is calculated on. Your mortgage payment will always be calculated based on the Interest Rate. You’re APR is what edges use to portray the true cost of your loan. If you have a bunch of fees associated with your loan then your APR will generally be a lot higher then the interest rate, if you don’t have very many fees to pay then your APR will be closer to the interest rate on your loan. When you compare loan products it is best that you compare your APR instead of the Interest Rate.