Real Estate Terminology

by Luis Reyes P.A. 04/07/2019

In real estate terminology, you may hear about various ratios and where you need to fall within the ratio to qualify for the home you want. A ratio simply expresses a relationship between two values: they compare two things, so a student/teacher ratio might be shown as 18:1, or one teacher for every 18 students. Different ratios apply to residential home buyers, investors, sellers, and lenders, but here are a few that might apply to you.

Loan-to-value or LTV

A comparison between the amount of a mortgage loan and either the home’s purchase price (for new buyers) or its appraised value (in a refinance) is its loan-to-value ratio. Lower LTVs typically qualify a buyer or homeowner a lower interest rate because there is less risk of default to the lender. So, a conforming mortgage with 20 percent down often garners a lower rate than an FHA loan with only five percent down.

Higher LTVs place more risk on the lender so if the market drops, the home could be “upside-down” or worth less than the amount of the mortgage.

Debt-to-income ratio or DTI

More important to home buyers is the debt-to-income ratio. Also called a debt-service ratio, it expresses how much money the borrower makes monthly compared to the monthly ongoing debt payments and obligations. A lender uses this figure to determine how high a mortgage payment you can handle. The first number is your income (gross) from your job, plus any other income that can be counted such as child support or a trust disbursement that you can use to make your mortgage payment plus taxes and insurance, and if applicable, association dues.

The second number uses the same calculation as the first plus any long-term debt such as a vehicle or school loan and consumer debt. This amount is the percentage of your income used to pay housing and long-term debt. So, a ratio of 30:37 (also written 30/37) means you spend 30 percent of all your income on housing with no more than seven percent obligated to debt service. That leaves you with 63 percent of your income for food, auto insurance, medical bills, clothing, and other expenses. Qualifying ratios adjust over time, but the Federal Housing Administration lists the qualifying ratio and the formula to determine it to qualify for an FHA loan.

Price-to-income ratio

Your DTI comes from your personal debts and income, and the LTV comes from a specific home's value, but the price-to-income ratio expresses the affordability of housing in a given locale. Most often, it is the ratio of the median home price to the median household disposable income. This ratio helps you determine if the home you want to buy is overpriced (it will be hard to sell) or under-priced (super good deal) for its geographical location. Lenders use this ratio as one additional factor in determining risk for that specific home.

To learn where your ratios fall and to determine if an area is right for your household budget, let your local real estate professional guide you.

About the Author
Author

Luis Reyes P.A.

My Client Testimonials

To whom it may concern: Luis Reyes is like a good family member, the one that comes to your house, seats at your table and talks you directly in the eye, honestly and to the point. He has good knowledge of the market, as well as expertise on the whole process of selling and buying. I have little patience with things, and Luis knew how to work with me being courteous, helpful and reliable. He was always on time at showings. He is very polite with house owners and realtors. He was always looking after my interests first and gave me excellent pieces of advice when these were in jeopardy. I am looking forward to working with him again. (letter of recommendation regarding the purchase of 6864)

Sincerely, Mike

Hi Luis, hope you can show this letter to other customers so they can see what great experience I had. Working with Luis Reyes has been a wonderful experience. As a first buyer you always have a lot of questions, doubts and expectations that grow every day as the house hunting and buying takes place. Luis responsiveness and availability made a huge difference in this process. Weekends and free time have a different meaning for him. Like a doctor, always willing to do what it takes for his patients, he would answer our calls days and nights and would show houses at anytime of the week. He is very professional with buyers, sellers and realtors; even on occasions when any human being would have lost his nerves, he remained calm and smiling. He has a great sense of ethics. I would recommend him with friends and family and I would definitely trust him in the purchase of a future property. (letter of recommendation regarding purchase of the condo located at 14211)

Best regards , Yanet

My Experience

  • Specialties: Buyer's Agent, Listing Agent, Relocation, Foreclosure, Short Sales.
  • I am fully committed to providing you with a noticeably higher level of service that will make your real estate experience as easy and as stress-free as possible. 
  • You can expect from me: Personal and knowledgeable service that is genuinely responsive to your needs. 
  • A "Neighborhood Specialist's" for over 12 years. Familiarity with local communities, home values, and price trends.
  • Top professional skills, advice and guidance throughout the entire buying or selling process.  
  • I can save you valuable time and effort in securing home financing, insurance, and home connections. 
  • Feel free to contact me anytime, whether it's to get started on helping you realize your goals and dreams, or just to ask a question. 
  • I would welcome the opportunity to make a difference for you.

My Credentials and Memberships

  • National Association of Realtors; NAR
  • Florida Realtor Association
  • Miami Association of Realtors
  • Seniors Real Estate Specialist ®; SRES ® 
  • Military Relocation Professional Certification; MRP