Mortgage Definitions

Ever wondered about all the terminology we use in the real estate business and what it means?

It can be confusing, and you’re not alone.

Even people in the industry have misunderstandings about some of the terms and what they mean to their clients.

Not to worry…

here’s a brief explanation on some mortgage terms to help you through the process when you’re ready to start thinking about talking to a lender’s loan officer or mortgage broker.

Call, text, or email me today! 

I’d seriously enjoy having the opportunity to talk to you about your plans if you’re moving, or if you know someone who is considering a move, and needs some straight answers.

Loan-To-Value (LTV):

Ever wonder what Loan-To-Value is and how is it part of your mortgage process when you get pre-approved for purchasing a home?  A lender will use loan-to-value calculations on both refinance & purchase transactions.

When refinancing the LTV is generally the loan amount divided by the appraised value of your home.  With the refinancing process, the lower your LTV the better your interest rate will be.  Aha, a direct correlation to how much equity you have and the interest rate on your new loan.

Trying to refinance a mortgage where your LTV is very high or exceeds 100% will provide higher rates and potentially even eliminate some loan options.  However, there ARE loan products available for homeowners who owe close to, or more, than the appraised value of their home.

When you purchase a home, the LTV is a measurement of the difference between your down payment against the purchase price (or appraised value)… it’s generally  the lesser of the two.

Here’s a look at two different scenarios:

This is a purchase scenario, where the home appraises at the contract purchase price:

  • ·       Purchase Price                 $500,000
  • ·       Appraised Value             $500,000
  • ·       Down Payment               $100,000 (20%)
  • ·       Loan Amount                   $400,000
  • ·       Loan-To-Value                 80%

What if the home doesn’t appraise?

  • ·       Purchase Price                 $500,000
  • ·       Appraised Value             $480,000
  • ·       Down Payment               $96,000

o   Down payment is 20% of the appraised value because that is the lower of the two numbers when comparing purchase price to appraisal

  • ·       Loan Amount                   $384,000

o   This is 80% of the appraised value

  • ·       With this scenario, the loan amount is based on 80% of the appraised value.That’s due to the appraised value being lower than the purchase price. If you, as the buyer, want to pay more than the home appraised at, you can do that. You will simply  need to come up with the amount as additional cash. I’m seeing people doing this more and more lately as the market heats up. Currently sellers are getting multiple offers, often in just a couple of days, and the appraisers haven’t all caught up to the pace of the market. (although most of them who work locally in our Boulder area are pretty savvy).

 

Here are some quick guidelines for maximum LTV requirements:

VA – 100% LTV

FHA – 96.5% LTV

Conventional – 95% LTV

USDA – 100% LTV

Jumbo – 90% LTV

This helpful info is brought to you in part by Brian Manning , Residential Mortgage Lender at BayBurg Financial

Thinking of moving? Get pre-approved for your new loan by calling Brian at: 720-496-4311

Zachary Epps, GRI, ABR, REALTOR®, Eco-Broker®, full-time RE/MAX professional, and author of

The Boulder Real Estate and Neighborhood Guide 

The Boulder Condo Guide 

The Home Buyer’s Handbook

Call, text, or email me today!… I’d seriously enjoy having the opportunity to talk to you about your plans if you’re moving, or if you know someone who is considering a move, and needs some straight answers.

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