The ratio between the unpaid principal amount of your loan, or your credit limit in the case of a line of credit, and the appraised value of your collateral. Expressed as a percentage.
To get a clearer view of the home loan process, it’s helpful to know some of the factors that will be considered when your Glossary Term: mortgage application is reviewed.
When you apply for a mortgage, whether you're purchasing or refinancing, your mortgage loan officer will forward your application and the supporting documentation to an Glossary Term: underwriter. It’s the underwriter’s responsibility to review your loan scenario and the supporting documentation to ensure that it meets the loan program guidelines to determine whether or not you qualify for the loan.
The underwriter looks at your application to see if it meets these basic criteria:
The underwriter will verify your Glossary Term: down payment funds. If you have a down payment of less than 20%, you will typically be required to carry private mortgage insurance (PMI) at an extra cost. The underwriter will review your documentation to estimate whether you have enough money to cover Glossary Term: closing costs. You may also be required to have set aside 2 monthly mortgage payments as Glossary Term: reserves. Lenders typically require reserves to cover your mortgage payment in case of emergencies or unforeseen events. If you are refinancing and don’t exceed the lender's maximum loan-to-value limit, you may be able to finance some or all of the closing costs instead of paying them out of pocket.
As you move forward, keep in mind that your income, debt, credit history, down payment and savings (if applicable), the home’s value and your loan program’s guidelines will all play a role in whether your loan application is approved.