Mortgage Terminology Review

Key Mortgage and Loan Terms

APR: Annual Percentage Rate.
Backend Ratio: Measures income plus long term debt for housing affordability; also known as total debt ratio, back ratio, or bottom ratio.
CLTV: Cumulative Loan to Value; includes all loans on a property in the loan-to-value ratio if multiple loans exist.
Discount Point: A fee, typically 1% of the loan amount.
DTI: Debt to Income ratio; indicates the proportion of debt to income, where a lower ratio is preferable.
Equity: The property's value after subtracting any loan amounts owed.
Frontend Ratio: Measures income availability for housing affordability; also known as housing ratio or top ratio.
LTV: Loan to Value ratio; compares the mortgage loan to the property value.

Mortgage Banker: Originates loans for federally chartered financial institutions, registered with NMLS but not necessarily licensed.
Mortgage Broker: Originates loans for their own company and must be state-licensed.
Mortgage Loan Originator (MLO): Originates loans for a broker or company and must be licensed in applicable states.
NMLS: Nationwide Mortgage Licensing System.
NMLS & R: Nationwide Mortgage Licensing System and Registry (Note: Correctly termed as Nationwide MLS).

PITI: Principal, Interest, Taxes, and Insurance; components of most mortgage payments.

APR: Annual Percentage Rate.
Backend Ratio: Measures income plus long term debt for housing affordability; also known as total debt ratio, back ratio, or bottom ratio.
\text{Backend Ratio} = \frac{\text{Total Monthly Debt Payments (PITI + all other recurring debt)}}{\text{Gross Monthly Income}}
CLTV: Cumulative Loan to Value; includes all loans on a property in the loan-to-value ratio if multiple loans exist.
CLTV = \frac{\text{First Mortgage} + \text{Second Mortgage} + \text{Other Liens}}{\text{Appraised Value or Purchase Price (whichever is less)}}
Discount Point: A fee, typically 1% of the loan amount.
\text{Discount Point Cost} = 0.01 \times \text{Loan Amount}
DTI: Debt to Income ratio; indicates the proportion of debt to income, where a lower ratio is preferable.
DTI = \frac{\text{Total Monthly Debt Payments}}{\text{Gross Monthly Income}}
Equity: The property's value after subtracting any loan amounts owed.
\text{Equity} = \text{Property Value} - \text{Total Loan Amount}
Frontend Ratio: Measures income availability for housing affordability; also known as housing ratio or top ratio.
\text{Frontend Ratio} = \frac{\text{Monthly Housing Expense (PITI)}}{\text{Gross Monthly Income}}
LTV: Loan to Value ratio; compares the mortgage loan to the property value.
LTV = \frac{\text{Loan Amount}}{\text{Appraised Value or Purchase Price (whichever is less)}}

Mortgage Banker: Originates loans for federally chartered financial institutions, registered with NMLS but not necessarily licensed.
Mortgage Broker: Originates loans for their own company and must be state-licensed.
Mortgage Loan Originator (MLO): Originates loans for a broker or company and must be licensed in applicable states.
NMLS: Nationwide Mortgage Licensing System.
NMLS & R: Nationwide Mortgage Licensing System and Registry (Note: Correctly termed as Nationwide MLS).

PITI: Principal, Interest, Taxes, and Insurance; components of most mortgage payments.