Definitions:

Affordability: The maximum loan amount a lender deems you are able to afford based on a lender’s evaluation of your income and expenses. Your affordability is calculated based on the amount of your monthly income that can reasonably go towards a monthly mortgage payment, taking into account your existing monthly debts as well as your ability to cover your living expenses and meet any savings goals. Note: your affordability is just an estimate and does not account for any savings and investments or your personal financial plan.

Total Affordable Home Value: The maximum property price that you can afford based on the maximum amount of your monthly income that can go towards a monthly mortgage payment, as evaluated by a lender.

Monthly Payment: The total amount of the recurring payments paid on a monthly basis for the lifetime of the loan. It includes the monthly principal and interest payment on the loan, and may also include recurring taxes, homeowners insurance payments, mortgage insurance payments, and HOA dues. Note: taxes, insurance, and dues can be paid separately and may be paid semi-annually or annually rather than monthly.

Total Payment: The total amount of the recurring payments made over the lifetime of the loan. Note: it does not represent the total cost you will incur in owning the property. It does not include your down payment and any fees.

Annual Income: The combined annual income for you and your co-borrower before taxes and deductions. Include all tips, overtime, commission, etc. in addition to your base salary.

Monthly Debts: The combined amount of debt you and your co-borrower pay each month. It should include any recurring monthly payments on long term debt including car payments, court-ordered child support, minimum monthly credit card payments, student loans, auto loan payments, etc. Do not include credit card payments you pay in full each month, your current mortgage payment if you are planning on selling your property, or the payments on the new property you are looking to purchase.

Down Payment: The amount you plan to apply toward an upfront payment on the purchase price of the property.

Interest Rate: The interest charge charged by the lender to reflect the lender's risk expressed as a percentage of the loan you will take on. Go to “My Rates” to determine the best interest rate for you.

Loan Term: The period of time that constitutes the duration of the loan agreement – the time in which you must pay off or refinance the loan.

Property Tax: The annual tax you pay on your property as a percentage of the total property value.

Homeowners Insurance: Insurance required by lenders to protect homeowners and lenders from damage or loss to the home, its contents, or other personal property

Mortgage Insurance: Insurance to protect lenders against default on the loan. Lenders typically require insurance if the down payment is less than 20% of the purchase price. Mortgage insurance can either be purchased from the Federal Housing Administration (mortgage insurance premium, MIP, for FHA loans) or through private insurers (private mortgage insurance, PMI). Lenders are required to cancel mortgage insurance on most home loans once the loan value equals 78% of the home value. Borrowers who wish to cancel earlier can terminate mortgage insurance when their loan value equals 80% of the home value given they have a good payment history.

HOA Dues: Monthly fees typically required by condos, townhomes, or other shared housing developments to cover the cost of insurance, maintenance, services, and amenities.

Housing Expense Ratio: Also known as the front-end ratio, the percentage of your monthly income that can go towards housing expenses.  Lenders use it to determine the maximum monthly payment you can afford in conjunction with the total debt-to-income ratio. Lenders generally prefer a housing expense ratio of 28% or lower.

Total Debt-to-Income Ratio: Also known as the back-end ratio, the percentage of your monthly income that can go towards recurring monthly debts including credit card payments, car loans, and student loans.  Lenders use it to determine the maximum monthly payment you can afford in conjunction with the housing expense ratio.  Lenders generally prefer a total debt-to-income ratio of 36% or lower.