While this video simplifies things to help you remember, the loan to value ratio is the amount of money you borrow compared with the price or appraised value of the home you are purchasing.
Each loan has a specific LTV limit. For example: With a 75% LTV loan on a home priced at $100,000 you could borrow up to $75,000 (75% of $100,000) and would have to pay $25000 as a down payment.
The LTV ratio reflects the amount of equity borrowers have in their homes. The higher the LTV the less cash homebuyers are required to pay out of their own funds.
So, to protect lenders against potential loss in case of default, higher LTV loans (80% or more) usually require mortgage insurance policies.
As this video explains, Federal laws put into effect in 2014 and supervised by the Consumer Financial Protection Bureau define lending practices and loan terms for a new category called “Qualified Mortgages.”
They provide stable loan features for consumers and improve legal protection for lenders who follow the guidelines.
These guidelines require lenders to assess each borrower’s ability to repay their mortgage loan.
As of 2014, guidelines require that a borrower’s monthly DEBT – including mortgage – be no higher than 43% of their monthly gross INCOME.
The laws also define unacceptable loan terms:
- interest-only loans
- terms over 30 years
- negative-amortization loans that increase principal over time
- most balloon loans do not meet the Qualified Mortgage guidelines.
The laws aim to provide consumers with objective guidance about reasonable debt from the CFPB and in return, to grant lenders who follow that guidance with higher levels of protection from lawsuits.
Ask your lender about Qualified Mortgage options for your home purchase.
The original phrase “mort gage” translates as “death pledge”! But as this video explains, a mortgage is a loan obtained to purchase real estate.
The “mortgage” itself is a lien – a legal claim on the home or property that secures the promise to pay the debt.
All mortgages have two features in common: principal and interest.
The principal is the amount you are borrowing which is “secured” by the lender’s claim on the property.
The interest, usually stated as the percentage rate is the additional amount paid for borrowing. Mortgage interest is ‘compounded’ – interest on interest, over time.
After October 3, 2015 you will no longer be receiving a HUD-1 settlement statement before consummation of a closed-end credit transaction secured by real property.
That’s right, I just said consummation of a closed-end credit transaction and no more HUD. There is new jargon to go along with the new, easy-to-read, consumer friendly, disclosures.
Bon Voyage HUD!
After October 3, the ‘HUD’ will be called a ‘Closing Disclosure’ (CD). ‘Closing’ will be referred to as consummation and the ‘Good-Faith-Estimate’ (GFE) will be called a ‘Loan Estimate’.
Take a peek at the new disclosures!