Popular Kentucky Mortgage Terms To Know

I know the mortgage process can be confusing, so I thought I’d shed some light on what some of the acronyms in the mortgage world mean.

LTV
LTV stands for Loan to Value Ratio.  It represents the amount of money borrowed divided by the purchase price of the home.  For example, if you borrow $400,000 on a house with a purchase price of $500,000, the loan to value ratio or LTV is 80%.  Different loan programs have different maximum LTV standards.  

DTI
DTI Stands for Debt to Income Ratio. It represents a borrower’s monthly debts divided by their monthly gross inome.  It is a calculation used by banks to determine how much money an applicant is qualified to borrow. Different loan programs have different maximum DTI ratios.

PMI or MIP
Private Mortgage Insurance or PMI protects the lender in case the borrower defaults on a loan.  PMI is required on Conventional loans in which the borrower has a down payment of less than 20%. It is either paid upfront at closing in a lump sum or on a nonthly basis with your mortgage payment.

MIP or Mortgage Insurance Premium is required with all FHA loans also to protect the lender against default by the borrower.  MIP is required on all FHA loans regardless of loan to value ratio because the guidelines on FHA loans are less strict than on conventional loans.  There is a one time up-front MIP payment and a monthly MI payment with FHA loans

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Kentucky Mortgage Terms to Know

Glossary of Mortgage Terms to Know For A Kentucky Mortgage Loan.

ACCRUED INTEREST: Accumulated interest since the principal investment that has
not yet been paid.
AMORTIZATION: Paying off debt, principal and interest, with a fixed repayment schedule
in regular installments over a fixed period of time.
ANNUAL PERCENTAGE RATE (APR): The annual rate charged for borrowing money
expressed as a percentage. APR takes into account interest, discount points, lender fees
and mortgage insurance.
APPLICATION FEE: A fee charged by a lender to cover the initial costs of processing a
loan application.
APPRAISAL: A written estimate of a property’s current market value, based on the current
condition of the property and recent sales information from similar properties in the same
area.
APPRAISAL FEE: The cost to have a licensed, certified appraiser estimate the market value
of a property as of a specific date.
BORROWER: An individual who receives a loan from a lender with the intention of repaying
the loan in full over the agreed upon time-frame.
CAP: A limit on the amount the interest rate can increase or decrease for an ARM, either in
an adjustment period or over the life of the loan.
CERTIFICATE OF ELIGIBILITY: A document given to qualified veterans entitling them to a
VA loan. Obtained by sending DD-214 (Separation Paper) to the local VA office with VA
form 1880 (request for Certificate of Eligibility).
CERTIFICATE OF REASONABLE VALUE (CRV): An appraisal issued by the VA.
CLOSING: Also called “settlement,” is when all parties in a mortgage loan transaction sign
the necessary documents to legally transfer property and funds.
CLOSING COSTS: Expenses incurred during the home purchase or refinance process that
are paid at closing, including the loan origination fee, discount points, attorney’s fees, title
insurance, appraisals, etc.
CLOSING DISCLOSURE (CD): A five-page document listing final details about the mortgage
such as loan terms, projected monthly payments and total closing costs.
COMMITMENT LETTER: A legal document issued to a loan applicant from the lender to
provide them with a mortgage under certain terms and conditions.
COMPARABLES: An abbreviation for “comparable properties;” recently sold properties
with similar characteristics and location to the subject property that help the appraiser
determine the fair market value of the subject property.
CONVENTIONAL LOAN: A loan not secured by the U.S. government, such as FHA,
VA, or USDA.
DEBT-TO-INCOME RATIO (DTI): A percentage of an individual’s debt, measured by dividing
total monthly recurring debt payments by gross monthly income.
DEED: A written legal document showing who owns a particular property. This must be
signed to transfer a property’s ownership rights to a new homeowner.
DEPARTMENT OF VETERANS AFFAIRS (VA): A government agency that manages
benefits and other services for eligible veterans of the military.
DOWN PAYMENT: The upfront money paid to purchase a home. It is deducted from the
total amount of a mortgage and represents the beginning equity.

EARNEST MONEY: A security deposit made by a buyer to a seller to demonstrate that
the buyer is serious and willing to purchase the property.
EQUAL CREDIT OPPORTUNITY ACT (ECOA): Federal law enacted in 1974 making it
unlawful for any creditor to discriminate based on race, color, religion, national origin,
age, sex, marital status or receipt of income from public assistance programs.
EQUITY: The portion of a property that homeowner owns. Equity is the difference between
the home’s fair market value and the outstanding balance of the mortgage on the property.
ESCROW: A third party that holds money to ensure pay property taxes, homeowner’s
insurance or mortgage insurance is paid on time.
HAZARD INSURANCE (HOMEOWNER’S INSURANCE): Protects a homeowner against
loss due to fire or other natural disasters in exchange for a premium paid to the insurer.
HOMEOWNERS ASSOCIATION (HOA): An organized group of owners, usually found in
condominiums or closed communities, who manage the common areas and enforce rules.
INTEREST RATE: The amount charged to borrow money from a lender, expressed as a
percentage of the principal loan.
LOAN ESTIMATE (LE): A three-page document that explains the important details
about a borrower’s loan, including the estimated interest rate, monthly payment and
total closing costs for the loan. The LE will be provided within three business days of
the lender receiving the loan application.
LOAN-TO-VALUE RATIO (LTV): The percentage of the loan amount to the appraised
value of the property.
LOCK-IN RATE: An offer by a lender to guarantee an interest rate for a set period of time.
MARKET VALUE: Also called “home value;” the amount for which a house will likely sell.
MORTGAGE INSURANCE (MI): Insurance that protects the lender if a borrower defaults
on their mortgage loan. MI is usually required if the down payment is less than 20% of
the purchase price.
ORIGINATION FEE: A fee charged by a lender to cover the administrative costs of
processing a loan.
PREPAYMENT: An advanced principal payment prior to the due date, thus saving money
on interest.
PREPAYMENT PENALTY: A fee charged to borrowers for paying ahead on their mortgage.
PRINCIPAL: Outstanding loan balance still owed to the lender, not including interest.
REALTOR: A licensed real estate professional who represents a buyer or seller in a real estate
transaction in exchange for a commission; a member of the National Association of Realtors.
REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA): A federal law requiring lenders
to provide disclosures to borrowers informing them of loan settlement costs. These guidelines
provide acceptable practices and fees in real estate transactions.
SECOND MORTGAGE: An additional mortgage, or lien, placed on a property with subordinate
rights to the first mortgage.
TERM: The period of time that covers the life of the loan, usually in years.
TITLE: A document that indicates ownership of a property, as well as rights of ownership
and possession of the property.
TITLE INSURANCE: Insurance that protects the lender (lender’s policy) or the buyer
(owner’s policy) against loss due to disputes over property ownership.