Key Terms Explained

LTV

Loan-to-Value Ratio

LTV compares how much you're borrowing to the appraised value of the property. The lower your LTV, the more equity you have — and the better your loan terms tend to be. Most conventional loans require 80% LTV or less to avoid private mortgage insurance.

DTI

Debt-to-Income Ratio

DTI measures your total monthly debt payments against your gross monthly income. Lenders use this to determine how much mortgage you can afford. Most loan programs want your total DTI — including your new mortgage payment — at 43% or below.

Rate vs APR

Interest Rate vs Annual Percentage Rate

Your interest rate is what the lender charges to borrow the money. Your APR includes the rate plus fees, points, and other costs — giving you the true cost of the loan. Always compare APR when shopping lenders, not just the advertised rate.

Points

Discount Points & Buying Down Your Rate

A "point" equals 1% of your loan amount, paid upfront at closing to permanently lower your interest rate. Each point typically reduces your rate by about 0.25%. It's essentially prepaying interest — you spend more upfront to save more monthly. Points make sense when you plan to stay in the home long enough for the monthly savings to exceed what you paid. The break-even point is usually 3–5 years.

HELOAN vs HELOC

Home Equity Loan vs Home Equity Line of Credit

HELOAN: Lump sum, fixed rate, same monthly payment every time. Best if you need all the cash upfront — think debt payoff or a big project.

HELOC: Works like a credit card tied to your house. Variable rate, interest-only at first, then principal + interest later. Best if you want flexible access to funds over time.