Mortgage Terms: A Vocab Lesson by UHL
Researching a mortgage is a lot like texting your 13-year-old niece… Lots of lingo and abbreviations that you don’t understand. But don’t worry, that’s why we’re having a UHL vocabulary lesson. Your one-stop shop for understanding some top mortgage terms.
Kicking off our list of mortgage terms are some important values you’ll likely hear about when looking into loan qualification requirements…
- Debt-to-Income ratio (DTI) is calculated by adding up monthly bills like your mortgage, student debt, and credit card payments. Divide the total by your gross monthly income. This will give your DTI in the form of a percentage. A DTI of 43% is good for a conventional loan, however, 50% is generally the highest amount permissible. For a Jumbo Loan, DTI ideally should be below 36%.
- Loan-to-Value ratio (LTV) is how much of your home’s value is borrowed, expressed as a percentage. If you buy a home and put 5% down, then your LTV is the remaining 95%. An LTV at or below 80% typically gets you a better interest rate and means you do not have to pay PMI.
- Private Mortgage Insurance (PMI) Is charged by investors as a way of financially protecting the lender if a borrower stops paying. You will pay PMI if you put less than 20% down.
- Annual Percentage Rate (APR) represents the annual cost of a loan to a borrower, including fees and interest. The less money required upfront, the lower the APR.
Loan Options Lingo
Once you start comparing loans, there are a few more mortgage terms you may run across…
- Adjustable Rate Mortgage (ARM). The initial interest rate of an ARM is fixed for a set number of years. You can adjust the rate every year or semi-annually thereafter with a lifetime adjustment cap on the interest rate.
- Federal Housing Administration (FHA). FHA Loans are government-issued mortgages that appeal to borrowers because of their low down payment and flexible qualifying requirements. Bonus Term! FHA is part of HUD, which stands for the Department of Housing and Urban Development.
- Home Equity Line of Credit (HELOC) is a loan that allows you to borrow against the equity in your home to create a line of credit, using your house as the collateral.
Mortgage Term Quiz Time!
Ok, we’re not really going to quiz you. But, with your new mortgage terms in hand, are you ready to start the buying process? Or maybe you’re still perfecting your loan vernacular? Either way, it sounds like it’s time to talk to a UHL expert and get all your questions answered.