The Essentials

A lot of jargon and acronyms get thrown around within the mortgage world. Below are just a few you'll want to be comfortable with:

LTV-This stands for 'loan to value' and is a ratio of your loan amount vs the value of your home. LTV is almost always the opposite of equity. For example, if you have an $85,000 loan and a $100,000 home value you will have an 85% loan to value, but 15% equity.

DTI-This stands for 'debt to income' and is a ratio of your total monthly payments vs your monthly income before taxes. For example, if you have $3,500 in monthly bills and you gross $10,000/month you have a 35% debt to income ratio.

FICO-This is not an acronym, but very important to understand nonetheless. Your credit profile is tracked by three major bureaus and each one has a corresponding score based on available credit and payment history. Lenders will take the middle score of the three for credit qualifying purposes. In cases where there are more than one borrower, they will take the lower borrowers mid-score.

Contrary to what a lot of people think, mortgage insurance is NOT insurance for the borrower, it is for the lender and it protects the loan in case of default. 

Most situations that require PMI/MIP are due to equity, although some transpire from other qualifications like credit history or income scenarios.

PMI (Private Mortgage Insurance) is used for Conventional Loans with less than 20% equity and MIP (Mortgage Insurance Premium) is used in all FHA loans. VA loans do not carry mortgage insurance, however in most instances they do have an upfront funding fee that is financed into the loan.

Conventional PMI allows you to shop from one insurance company to another, and the cost is very customized around the details of the loan. FHA MIP is standardized, so regardless of your credit score or other qualifications, everyone gets charged the same premiums. 

Escrow accounts involve having the cost of your property taxes and home insurance included in your monthly mortgage payments. This makes these expenses easier to budget for rather than having to come up with all the funds at once.

All FHA, VA, and USDA loans require and escrow account, along with any conventional loans with less than 20% equity.

When establishing initial escrow accounts, lenders require an additional two month cushion of whatever the taxes and insurance may be. The cushion allows payments to be made to the county and/or insurance company in the event that a borrower misses a payment or the costs increase.

Escrow accounts are analyzed at least once a year to ensure that the proper funds are in the account and set to be collected. 

Loan limits vary within each county and cap how much you can borrower. These are updated annually and as the cost of living goes up within a county the loan limits will typically follow. 

FHA loan limits vary between $294,515-$679,650

Conventional and VA loan limits start at $453,100 and work their way up.

If you are over the standard loan limit that doesn't mean you are out of luck - There are still LOTS of programs that you may fit your needs.

Discover the loan limits in your county by clicking below today!