Educate Yourself (4 Terms you should know)

Loan-to-Value This is commonly expressed as LTV, and it is a crucial factor in underwriting your mortgage. LTV is the loan amount as percentage of the purchase price or appraised value (whichever is less). To determine the LTV, divide the total loan amount by the sales price or appraised value, whichever is less. (This assumes your property will appraise at least equal to the sales price). If appraised value is less than the sales price, and you have applied for an 80% LTV loan, you will have to pay the difference in cash to make up the difference to maintain 80% LTV. If you don't have the extra cash to make up the difference, you may have to pay mortgage insurance for loans exceeding 80% LTV. LTV is also important because underwriting guidelines can be more flexible for lower LTV mortgages (i.e., higher down payment) to compensate for higher debt ratios and minor credit delinquencies.

Housing Ratio Basically, your housing ratio is the cost of owning your house relative to your income. This ratio is determined by dividing your total monthly housing expense by your gross monthly income before taxes. Your utility expenses are not calculated in the housing ratio. This can be a confusing area of loan underwriting, with different rules set by different lenders. But we're happy to help match you with the program that's right for you.

Debt Ratio The total amount you owe relative to your income. Your debt ratio is determined by dividing your total monthly obligations by your total monthly income. Your monthly obligations include your housing payment, credit card payments, auto loans, student loans, child support, alimony, separate maintenance agreements. Any debt with fewer than 10 monthly payments remaining does not have to be counted in the ratio.

Credit Score Your history of paying up and paying off. Credit scoring is now used as a major factor in determining the credit worthiness of borrowers. It's based on your ability to manage and repay credit in a timely manner. It considers your ability to pay off or reduce your debt, not just your ability to pay your debts on time. If you maintain a high credit card balance on numerous credit cards and never reduce the total outstanding balance, it will lower your credit score even though you have made timely payments.