When you borrow money for Real Estate, there are a plethora of acronyms and terms that will be thrown around with your Real Estate Agent, Mortgage Lender, Title and Escrow Officer that all Mortgage borrowers should know. Below is a list of just a few of the most common.
BASIC 101 TERMS:
LTV – Loan to Value. This number represents the percentage of dividing the loan amount by the appraised value. Loan programs will all have a Maximum LTV %. For example an FHA Purchase loan has a 3.5% Down Payment minimum. This equates to a 96.5% LTV Mortgage loan.
DTI – Debt to Income %. This percentage is reached by dividing your total debt in terms of monthly liability payments by your total income. Car payments, credit card payments, student loan payments and all housing payments are examples of debt you will factor your debt, and your income calculation will vary depending on your income type. W2 Employees, 1099 Contractors, Self Employed Business Owners, and those on Fixed Income are all held to different guidelines of calculating the total income that will be used to factor your DTI. Each loan program will come with it’s own set of DTI maximum guidelines.
PITI – Principle Interest Taxes & Insurance. This term is used to describe mortgage payments. Most Conventional and all Government loans will include all 4 of these in the monthly mortgage payments. In the event that the loan program requires mortgage insurance, you would want to see a breakdown of Insurance. Broken down to Property Insurance and Mortgage Insurance.
MI – Mortgage Insurance. This is insurance paid by the loan borrower to either a Private Mortgage Insurance carrier or to the FHA in the event of an FHA Loan. This insurance protects the Mortgage Lender (Bank) from loss of principle balance value in the event of a foreclosure.
FICO SCORE – This is the Credit Score. There are three main credit bureaus that are reported on a majority of credit reports pulled from credit reporting agencies. These three bureaus are Experian, Equifax, and Trans Union. What is typical in today’s lending environment, is for the Banks to ignore the highest score of the three, and the lowest score of the three, and use the MIDDLE SCORE of the three, regardless of the bureau, YOUR score. All loan programs that have credit score requirements and pricing adjustments, will base those guidelines and adjustments on the middle score. Most loan programs have minimum credit score requirements.
ADVANCED MORTGAGE TERMS:
PREQUAL – Prequalification letter that details loan program, buyers name, loan size, estimated loan payments, estimated interest rate and any additional comments for the Selling Agents
LSU – Loan Status Update
HVCC – Home Valuation Conduct Code
203(K) – FHA Loan Program that allows financing improvements made to a property. These loans can be used for Purchase and Refinances.
203(K) STREAMLINE – FHA Loan Program similar to the 203(K) that limits the amount of financed improvements to $35,000 and a list of other specific guidelines. The 203(K) STREAMLINE is a great program for buyers who want to purchase homes that need work, and want to roll the Contractor’s costs for the improvements into the same loan.
DU – Desktop Underwriter. Fannie Mae’s proprietary underwriting software.
LP – Loan Prospector. Freddie Mac’s proprietary underwriting software.
DU APPROVE & LP ACCEPT – These are Underwriting terms that are used when you have obtained automated approvals on underwriting software associated with Mortgage Investment Bank giants, Fannie Mae and Freddie Mac. Your best priced Conventional and FHA Mortgage loans are obtained when obtaining automated approvals through DU and/or LP.