Loan terms
Real estate agents and lenders use terms that are common in the business and they assume you know what they are talking about. I will explain a common term and its ramifications.
LTV = Loan-To-Value. This is the percentage of your loan to the value of the house. If you are getting a loan of $300,000, and the house is valued at $400,000, your LTV is 75%. The lower the LTV, the less risk to the lender. If you ever default on your loan, the lender can take your house, and they will be able to sell the house, get back the loan amount, plus a bit more. But mortgage lenders are not in the business of taking back and selling real estate. They would rather you just paid off the loan. With a low LTV, if you can’t make your payment, you can easily sell your house and pay off your loan, and most likely have money left over for yourself. So the lender are secure knowing that you will not allow it to get to the point of letting the lender take your property.
Now, the converse is also true if you have a high LTV. For example, you buy a house for $400,000. You put 5% down payment, $20,000. The loan amount is $380,000, or 95% LTV. After a year, you lost your job and cannot make the mortgage payment. If property value has not gone up, you sell your house for the same amount that you paid. You have enough to pay off the loan of $380,000, but $20,000 is not enough to pay closing costs, plus back payments, and penalties on the loan if you are behind. You would have to pay out of pocket to close escrow. Rather than doing that, you walk away and let the lender take the house. You will have a foreclosure on your record for 7 years.
If your LTV is low, some lenders will give you a little break on the interest rate.