Mortgage 411 Center

As a mortgage professional who actively networks online, I have the opportunity to read many mortgage and real estate related blogs and websites.   The one thing that I noticed is that although there is a lot of information out there, it can sometimes be difficult for the average consumer to understand.  While other mortgage professionals will understand terms like LTV, PITI, PMI and FICO we often take for granted that the consumer will understand them as well. 

This is not only a problem online, but it also occurs in speaking with customers on a day to day basis.  Out of habit, mortgage loan officers tend to  rely on mortgage speak , forgetting that the customer probably has no idea what the loan officer is saying.   Here are some typical examples:

• If you purchase this home, your PITI will be $1254.76 per month.
• You will have to pay PMI on your loan since your LTV is higher than 80%.
• Because of your FICO, your interest rate is going to be 6.5%.

Allow me to translate.

PITI stands for Principal Interest Taxes and Insurance.  It is basically the amount that you will pay to the mortgage company each month.  Most online mortgage calculators where you plug in the loan amount and interest rate will only give you the amount of Principal and Interest (PI).  But the PITI is the true cost of the loan.

PMI stands for Private Mortgage Insurance.  You will have to pay this if your LTV (that’s loan to value) is greater than 80%.  For example if you are buying a $100,000 house  with a downpayment of $10,000 you would have a loan amount of $90,000 while your home is worth $100,000.  The ratio of your loan to value is $90,000/$100,000 or 90%.  PMI protects the lender in case you go into default.  It is not to be confused with homeowners insurance which you are also required to pay but which protects the homeowner in the event something were to happen to the house.

FICO stands for Fair Issac Corporation which developed the most widely used credit score.   Your lender may refer to your credit score as a FICO score, even if he uses a slightly different model.   Generally, the higher your FICO score the lower your interest rate and vice versa.

To learn more about some common mortgage terms and their meaning please view our mortgage glossary.  Before you know it, you’ll be talking like a loan officer too or at least you’ll be able to understand the mortgage process a little better.