Home Start, Inc., A Member of The Affordable Homes Group, Inc.


Say What? A Guide to Some Common Terms Equity Equity is the amount of interest an owner has in a property above and beyond the debts owed against it. If a house is worth $125,000 and the owner owes $100,000 in mortgage loans, he or she has $25,000 in equity. Mortgage A mortgage is document a borrower/owner signs giving their lender a lien against a property, one that allows the lender to force the sale of the property to satisfied unpaid debts. The mortgage is not the loan that the borrower receives, but the instrument that pledges the property as collateral for the loan. Most buyers say they "get" a mortgage, when in fact they receive a loan (often called a mortgage loan) and give a mortgage to the lender in return. Loan-to-Value Ratio The loan-to-value ratio is a reflection of down payment. It tells us how much a borrower borrows (the loan) compared to the purchase price/appraisal (value) of the house. A borrower who puts down 3% of the purchase price has a loan-to-value of 97%. A borrower who puts down 5% of the purchase price has a loan-to-value ratio of 95%. Point A point is one percent of the loan amount. Points, also known as discount points, are paid directly to the lender to reduce the interest rate on a loan. Most CRA loans (see above) do not require borrowers to pay any points. PMI PMI stands for private mortgage insurance. It is insurance that borrower pays to protect the mortgage lender against default. PMI is usually required for all loans when the borrower puts down less than 20% of the purchase price. It is paid in monthly installments as part of the total mortgage payment up until a borrower has 20% equity in the home, at which time the request can be made to the lender to cancel the insurance requirement. The cost for private mortgage insurance is similar to other forms of insurance. The amount of coverage is determined by the loan-to-value ratio, or how much the borrower puts down. With most insurers, credit scores are used to determine risk, and therefore play a part in setting the rate. Some loan programs may waive the PMI requirement for qualifying, first time home buyers. Generally these lenders will require clients to meet income limits and complete a homebuyer education program, like that offered by Home Start. It is also important to remember that PMI does not last forever, only until the homeowner has achieved 20% equity in the home.
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Say What?

A Guide to Some Common Terms

Equity

Equity is the amount of interest an owner has in a property above and beyond the debts owed against it. If a house is worth $125,000 and the owner owes $100,000 in mortgage loans, he or she has $25,000 in equity.

Mortgage

A mortgage is document a borrower/owner signs giving their lender a lien against a property, one that allows the lender to force the sale of the property to satisfied unpaid debts. The mortgage is not the loan that the borrower receives, but the instrument that pledges the property as collateral for the loan. Most buyers say they "get" a mortgage, when in fact they receive a loan (often called a mortgage loan) and give a mortgage to the lender in return.

Loan-to-Value Ratio

The loan-to-value ratio is a reflection of down payment. It tells us how much a borrower borrows (the loan) compared to the purchase price/appraisal (value) of the house. A borrower who puts down 3% of the purchase price has a loan-to-value of 97%. A borrower who puts down 5% of the purchase price has a loan-to-value ratio of 95%.

Point

A point is one percent of the loan amount. Points, also known as discount points, are paid directly to the lender to reduce the interest rate on a loan. Most CRA loans (see above) do not require borrowers to pay any points.

PMI

PMI stands for private mortgage insurance. It is insurance that borrower pays to protect the mortgage lender against default. PMI is usually required for all loans when the borrower puts down less than 20% of the purchase price. It is paid in monthly installments as part of the total mortgage payment up until a borrower has 20% equity in the home, at which time the request can be made to the lender to cancel the insurance requirement.

The cost for private mortgage insurance is similar to other forms of insurance. The amount of coverage is determined by the loan-to-value ratio, or how much the borrower puts down. With most insurers, credit scores are used to determine risk, and therefore play a part in setting the rate.

Some loan programs may waive the PMI requirement for qualifying, first time home buyers. Generally these lenders will require clients to meet income limits and complete a homebuyer education program, like that offered by Home Start.

It is also important to remember that PMI does not last forever, only until the homeowner has achieved 20% equity in the home.

Back to Home Start, Inc.

Delta Real Estate Homes of Hope People First

The Salt & Light Co., Inc. Contact Us