Mortgage Basics Overview

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Mortgage Terminology
 Mortgage- a legal document indicating that a
specific amount of money will be loaned at a
specific interest rate
 Equity-The difference between the present
value of the property and the mortgage amount
on that property

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Mortgage Terminology
 LTV (Loan to Value)- The ratio of the amount of
the loan to the lower of the appraised value or
sales price of real property (expressed as a
percentage) 
 CLTV(Combined Loan to Value)- The ratio of the
amount of the loan and any subordinate
financing (like home equity loans) to the
appraised value or sale price of real property

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Calculating LTV and CLTV

 The appraised price of the home is $200,000
and the mortgage amount is $160,000
 LTV= $160,000 divided by $200,000 = .80 or
80%
 Now assume there is a Home Equity loan with a
$10,000 balance as well
 CLTV= ($160,000+10,000) divided by
$200,000 = .85 or 85%

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More Mortgage Terminology

 Conforming- A mortgage loan which meets all
requirements (size, type, and age) to be eligible
for purchase or securitization by outside
agencies (ex. Fannie Mae)
 Non-Conforming- A mortgage loan in which the
loan amount, the loan-to-value ratio, the term, or
some other aspect of the loan exceeds
permissible limits as specified in agency
regulations

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Mortgage Loan Types and Sizes

Conforming Loan Size Limits
Property Type Maximum Loan Size

1-Family $333,700

2-Family $427,150

3-Family $516,300

4-Family $641,650

Check Daily Rate Sheet for updates, excludes Alaska and Hawaii

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Mortgage Loan Types and Sizes

Non-Conforming Loan Size Limits

Loan Type Maximum Loan Size

Jumbo $333,701-$700,000

Super Jumbo $700,001-$1,000,000+

Check Daily Rate Sheet for updates

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More Mortgage Terminology

 Conventional- Mortgage financing which is
not insured or guaranteed by a government
agency
 Non-Conventional- Mortgage financing
which is insured or guaranteed by a
government agency

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More Mortgage Terminology

 Lock period- The number of days during which
a lender guarantees a borrower a specific
interest rate and terms on a mortgage
 Float- A loan application in which the lender has
not committed to lend at a particular interest rate
 Rate Cap- On an adjustable rate mortgage, the
limit on interest rate increases and/or decreases
during each interest rate adjustment (adjustment
period cap) or over the term (life cap) of the
mortgage

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More Mortgage Terminology

 Point- An amount equal to one percent of the
principal amount of a mortgage. Loan discount
points are a one-time charge assessed at closing
by the lender in return for a lower note rate

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Mortgage Ratios
 Housing or front end debt ratio
 Monthly housing costs, including mortgage
payments, property taxes, insurance and monthly
maintenance fees (if applicable) as a percentage of
monthly gross income
 Total or back end ratio
 Monthly housing costs plus monthly payments on
consumer credit and other long term debt as a
percentage of monthly gross income

Front End Back End

Standard Financing Options 28% 36%
Affordable Mortgage Options 33% 38%

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More Mortgage Terminology

 Mortgage Insurance- Insurance which protects
mortgage lenders against loss in the event of
default by the borrower. This allows lenders to
make loans with lower down payments. The
federal government offers MI through HUD/FHA;
private entities offer MI for conventional loans
 Premium Pricing- a higher interest rate charged
to the borrower in exchange for receiving a dollar
amount credit that reduces their closing costs

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More Mortgage Terminology

 Escrow account- 1) the deposit by a borrower
with the lender to pay taxes and insurance
premiums when they become due or 2) the
deposit of funds or documents with an attorney
or escrow agent to be disbursed upon the
closing of a sale of real estate (also called
impounds)

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Refinancing
 Rate and term refinance- The refinance of an
existing mortgage balance solely to lower the
interest rate or change the terms of the loan
 Cash Out refinance- The refinance of an
existing mortgage at a higher dollar amount
resulting in cash back to the borrower. Also
refers to the refinance of 1st and 2nd mortgages
when the 2nd mortgage was not originated and
drawn on simultaneous with the purchase of the
property

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