Mortgage Facts / Definitions
Facts
- Most mortgage loans are based upon credit scores.
- A low credit score can still qualify for the best rate.
- 100% of home purchase costs can be financed.
- A 5% downpayment will usually provide the best rates.
- With good credit, but little verifiable income you can qualify for the no income verification loan.
Mortgage Loan Services:All mortgage loans are made up of two parts: a rate of interest and a term. The interest rate is the percentage applied to the unpaid balance of the amount you borrowed as a charge for the use of the money. This interest is paid in monthly installments, along with your payments to the loan balance. In effect, each monthly installment pays the interest and reduces the principal amount. Because monthly payments are constant, as time goes by a greater amount of your payments are applied to reducing your loan balance.
- New Home Purchase.
- Construction loans to enable you to build your new home.
- Bridge loans to facilitate the purchase of a new home even if your former home is still on the market.
- Debt consolidation enjoy a much lower interest rate than you currently pay for credit cards and improve cash flow.
- Refinance for lower rate and term.
- Line of Credit to finance that new deck or other home addition.
- Modular homes on permanent foundations qualify for conventional construction and permanent financing.
- Investment Properties- Purchase with as little as 10% down.
- All credit scores considered.
The term defines the number of years it will take to repay the loan plus the interest. Most loans don’t last the full term because people either refinance or sell the house before the loan matures.
A mortgage loan is a secured loan. When you get the loan, you pledge a property to the lender to back up your promise to repay the debt. Personal loans on the other hand are typically only backed by your signature and past credit history. As real estate tends to hold its value better than other assets, such as a car, a home is valuable security for a lender. This is why a lender is willing to loan you a large amount of money at a relatively low interest rate.
Definitions
Principal — The amount of money you need to borrow, usually the difference between the selling price of the property and the down payment.
Interest — The amount you will pay for borrowing money.
Mortgage Payment — A regular installment, usually made up of principal and interest, by which you repay the mortgage over its term to maturity.
Amortization Period — The actual number of years it will take to repay the entire mortgage.
Term — The length of time which a specific mortgage agreement covers, generally from 10 to 30 years.
Equity — The value of the property over and above all claims, generally being the difference between market value and the outstanding principal of all mortgages relating to the property.
APR — Annual Percentage Rate. The APR is expressed as a yearly rate, and is defined as the cost of credit to the borrower in relation to the amount borrowed. Obviously the higher the APR the higher the cost of the credit. The following fees are typically those included in the calculation: Origination Fees, Points, Prepaid Mortgage Interest, Buydown Funds From the Buyer, Mortgage Insurance Premiums, and Additional Lender Fees (Application, Processing, Tax Service, Etc.)
Prequalification — A prequalification is obtained after you provide your income, expenses, and asset information to your lending professional. You may or may not complete a loan application at this stage. In addition a credit report may or may not be obtained. The prequalification is based upon the information you have provided. In many cases a prequalification is sufficient for a homebuyer to make an offer on a property. The seller is content to know that the buyer has spoken with their lending professional, discussed and/or presented their financial information, and was prequalified to purchase a property for “X” amount, as well as obtain a loan for “X” amount.
Preapproval — A preapproval takes the prequalification process one step further. After you have completed a loan application, provided your income, expenses, asset information, and a credit report has been run, you can obtain a preapproval. We obtain a loan approval and commitment letter from one of our lenders prior to the buyer finding a property. Many of the lenders will even allow borrowers to lock in an interest rate for a specified period of time while looking for a home. The preapproval facilitates more buying power for the borrower and faster closings.
Rate Locks — Rate locks are a way of protecting you from the rise in interest rates during your loan process. You can lock your rate in with some lenders for as long as 120 days. The one thing you must remember is that with most lenders your rate is protected if rates rise or fall. That means that if the rates improve during your process, you still will get the rate you locked in at.
1003 — Uniform Residential Loan Application.
1008 — Transmittal summary.
Acquisition Indebtedness — A loan you get to build your house, a loan to buy your house or any loan you take out to substantially improve your home. Interest paid on such a loan is generally tax-deductible.
AUS — Automated Underwriting System; A computer application that streamlines the processing of loan applications and provides a recommendation to the lender to approve the loan, or to refer it to manual underwriting.
Back-end Ratio — The total of all monthly financial obligations, divided by the total gross monthly income.
CLTV — Combined Loan-to-value ratio; The overall mortgage debt, expressed as a percentage of the home's fair market value. This is calculated by dividing the Combined Loan Amount by the purchase price or the appraised value.Example: Someone with a $50,000 first mortgage and a $20,000 home equity loan secured against a $100,000 house would have a CLTV ratio of 70 percent. Also known as TLTV; Total Loan-to-value ratio.
Encumbrance — A lien, charge or liability against a property that affects or limits the ability to file a fee simple title, or affects the value of the property, for example, mortgages or easements.
FHLMC — Freddie Mac; Federal Home Loan Mortgage Corporation.
FNMA — Fannie Mae; Federal National Mortgage Association.
Front-end Ratio — Total monthly primary housing expense divided by the total gross monthly income.
HOA — Homeowners' Association; An elected group that governs a subdivision or planned community. It collects fees from owners to maintain common areas and enforce covenants, conditions and restrictions set by the developer and the association itself.
Impounds/Escrows — A trust-like account established by a lender to accumulate funds for payment of property taxes, hazard insurance, and mortgage insurance. The funds are collected monthly with the mortgage payment and the taxes/insurance are paid, when due, by the lender.
Lien — A form of encumbrance which usually makes specific property security for the payment of a debt or discharge of an obligation, e.g., mortgages, judgments, taxes, deed of trust, etc. One who holds a lien has the right to sell the property to obtain the money, or to recover the money when the property is sold. Valid liens are filed with county recorder's offices.
LTV — Loan-to-value ratio; The percentage of the home's price that is paid for by a mortgage. This ratio is calculated by dividing the loan amount by the purchase price or the appraised value.Example: On a $100,000 house, if the buyer makes a $20,000 down payment and borrows $80,000, the mortgage is 80 percent of the price of the house. Therefore, the loan-to-value ratio is 80.When refinancing a mortgage, the loan-to-value ratio is computed using the appraised value of the home, not the sale price.
MI — Mortgage Insurance; A policy that protects the lender by paying the costs of foreclosing on a house if the borrower stops paying the loan.Although mortgage insurance protects the lender, it is paid monthly by the borrower. Mortgage insurance usually is required if the down payment is less than 20 percent of the sale price. Also known as PMI; Private Mortgage Insurance.
Payment Shock — A term used to describe the difference between a borrowers current housing expense and the proposed housing expense, when the proposed expense constitutes an increase in monthly debt obligation for housing.
P&I — Principal and Interest; The portion of a borrower's monthly mortgage payment that represents repayment of the amount borrowed plus interest charges.
PITI — Acronym for the elements of a mortgage payment: principal, interest, taxes and insurance, representing the total sum of these components. This amount would also include any HOA dues.
PMI — Private Mortgage Insurance; See MI.
Prepaid Interest
1. The amount of interest paid at the time of closing to cover the period from the day the loan is funded through the end of that month.
2. Interest that a borrower pays before it is due, usually to save taxes.
PUD — Planned Unit Development; A real estate project in which individuals hold title to a residential lot and home while the common facilities are owned and maintained by a homeowners' association.
Single man/woman — One who has never been married.
TLTV — Total loan-to-value ratio; See CLTV.
Trust — Trust Account; A legal entity set up to transfer assets/property/income from the Trustor (creator) to the beneficiary. The administration of the transfer is done by a third party (Executor or Trustee).
Unmarried Man/woman — One you is divorced, single or widowed.
VOD — Verification of Deposit; A form completed by a banking institution to confirm a borrower's account balances and history, including information such as the current account balance, average balance, the date the account was opened.
VOE — Verification of Employment; A form completed by a borrower's employer to confirm the borrower's employment history and salary, including information such as the borrower's rate of pay, current year-to-date earnings, position and date of hire.
VOM — Verification of Mortgage; A form completed by a lender to confirm information regarding a borrower's mortgage, including the borrower's payment history, monthly payment, interest rate, etc.
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492 East Center Street
Marion, Ohio 43302
MB3492
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