PMI, DTI, LTV Defining Mortgage Acronyms

Confused, drawing a blank, staring into the abyss, fiercely typing into a search engine for a definition, maybe even sweating, if you find yourself with any of these symptoms you might suffer from Mortgage Term Acronym Disorder.

Mortgage acronyms, we know that there are many and if you’re in the business of buying a home they can come at you pretty fast. We’ve been in your shoes; we’ve suffered from those symptoms and that’s why we’ve created an easy guide to understanding those complicated acronyms! Let’s break it down.

But, what is PMI (Private Mortgage Insurance)?

Private mortgage insurance (PMI) is insurance that your lender may require IF you put less than 20% of the purchase price of your home down on your conventional loan. You might also have to buy PMI if you refinance your conventional home loan with less than 20% of the home value in equity.

The most common PMI is borrower-paid mortgage insurance, where you, the borrower, pay for the mortgage insurance. You will either pay PMI as a monthly premium added to your mortgage payment, once as an upfront cost at closing, or as a mixture of one upfront payment followed by monthly payments. For any other clarification on a PMI, it’s best to speak with your mortgage banker.

Oh my, what’s my DTI (Debt-To-Income Ratio)?

Your lender will do a simple calculation, taking into consideration your monthly debts as well as your monthly income sources, which will show your debt percentage. This ratio paints a picture of your financial strength and prevents you from purchasing a home that you may not be able afford.

There are a few different factors that your lender will look at to determine your DTI. Essentially, the lower your debt and the higher your income, the more you’ll be approved for. In most cases, a lender will want your total debt-to-income ratio to be 43% or less, so it’s important to ensure you meet this criterion in order to qualify for a mortgage.

While your debt-to-income ratio is calculated using your gross income, consider basing your own calculations on your net income for a more realistic view of your finances and what amount you’d be comfortable spending on a home.

What does LTV (Loan-To-Value) mean to me?

A loan-to-value (LTV) ratio is calculated by dividing your loan balance by your home’s appraised value. Its purpose is to provide a comparison between the value of the loan you are seeking to take out versus the actual value of your home. Your LTV ratio will typically affect the mortgage rate you’re able to obtain.

• Lower LTV – You will usually qualify for a lower mortgage rate because you’re considered to be less risky, since you have more equity in your home.

• Higher LTV – You will likely notice your mortgage rate is on the higher end, since you’re considered more of a risk due to having less equity in your home.

The LTV ratio happens to be one of the main factors that go into determining your ability to obtain a mortgage – so how can you ensure you’re a good candidate for a home loan? For starters, be sure you understand the impact of your down payment. With a number of loan options available, in some cases, qualified buyers can put down as little as 3.5% toward the purchase price of a home.

If your head is spinning, no that’s not a symptom of Mortgage Term Acronym Disorder (MTAD) we just threw a lot of information at you. The best way to truly understand any of this is to reach out to our amazing mortgage experts at Atlantic Bay!