General Mortgage Knowledge
What you must know
Build fluency with payment math and program rules. A monthly payment is PITI: principal, interest, taxes, insurance, plus mortgage insurance or HOA dues where applicable. LTV is the loan amount divided by the lesser of the sales price or the appraised value; CLTV adds subordinate liens. DTI compares monthly obligations to gross income - front-end housing ratio and back-end total ratio. Amortization spreads principal and interest over the term; a fully amortizing loan ends at zero, while interest-only and negative-amortization features change the risk profile.
Know the programs: FHA (low down payment, upfront mortgage insurance premium financed into the loan plus annual MIP), VA (no down payment for eligible veterans, funding fee), USDA (rural eligibility, guarantee fee), and conventional loans with private mortgage insurance that cancels automatically at 78% of original value based on the amortization schedule. Understand ARMs - initial rate, index, margin, periodic and lifetime caps, and adjustment frequency - plus discount points versus origination points, prepaid interest, escrow/impound accounts, and conforming versus jumbo limits.
Traps
- Questions often quote the sales price only; check the appraisal before you compute LTV.
- Points paid to lower the rate are discount points; a loan-origination fee is not a discount point.
- PMI termination is based on the original value and scheduled amortization, not a new appraisal.
Rule of thumb
When LTV and program rules conflict, use the conservative number - the higher LTV - and re-run the guideline.
Worked example
Price $400,000, appraisal $390,000, loan $360,000. LTV = 360,000 / 390,000 = 92.3%, not 90%, because the appraisal caps the value.