The best way to understand what happens during the mortgage process is to familiarize yourself with these common terms and definitions.
Adjustable-rate mortgage (ARM): a loan with a low start rate, adjusting every six months along with a monthly payment change.
Affordability: the amount of money you can comfortably afford to spend after factoring in your income, debts and down payment.
Debt-to-income ratio (DTI): a ratio comparing debt against income.
Down payment: the amount of the purchase price that the buyer must put down, often dictated by the loan type.
Fixed-rate mortgage: principal and interest payments are the same for the life of the loan. Interest rate is fixed.
Housing ratio: total housing costs of paying principal, insurance, taxes and mortgage insurance compared to borrower’s gross income.
Loan estimate: loan terms, monthly payment and loan costs in a lender-provided document three days after loan application is signed.
Loan-to-value (LTV): loan amount divided by the property value.
Preapproval: full verification of a borrower’s income, debt and assets to determine how much can be borrowed. Recommended prior to looking for a home.
Call or email me to further your understanding of the mortgage application process. I am always here to help.