A mortgage is a specific type of loan that is tied to Real Estate or property. In essence, it is an agreement between you (the borrower) and a financial institution (holder of the mortgage) to jointly buy a property together- you pay back the rest of the cost of the property over time, and the financial institution gets interest to pay them for putting the money up front.
Some terms you’ll see within mortgage: APR: This is the Annual Percentage Rate, or the cost of borrowing money
Amortization: A chart that shows the percentage of the loan payment that goes towards principal (the amount you borrow) and interest (the cost for borrowing it) each month.
LTV: Loan to Value, the percentage of the value of the house that you’re borrowing
PMI: Private Mortgage Insurance; this is an insurance plan that is required by most loans with less than 20% down. This is factored into your monthly payment.
DTI: Debt to Income; the ratio of total debts each month to total income each month
Types of Mortgages: FHA: these are loans that are backed by the Federal Housing Administration, and are designed to help specifically first time and low income borrowers. They are a popular option as they have only a 3.5% downpayment requirement. These loans do have PMI.
VA: these loans are specifically for Veterans, and do not require any downpayment.
Conventional: a “standard” loan, carries PMI with between 5-19% downpayment, does not need PMI for 20% and over downpayment. Often insured by Fannie Mae and Freddie Mac, federal mortgage insurers.
Leave a Reply