YOU SHOULD KNOW
WHEN LOOKING FOR A MORTGAGE
loans- Loans that conform to all investor specifications including
credit and debt requirements
Appraisal- The process through which appropriate property
values are established. Appraisers are certified and provide to
the lender, a report comparing the purchased property with comparable
properties. The appraisal is not to be confused with property
ARMs- Adjustable Rate Mortgages have notes rates that can
change from time to time. The most common adjustable period is
one year; however some ARMs can adjust every month; some don't
adjust until after three years. ARMs carry a lower note rates
than fixed fixed-rate loans. Many times ARMs can be used to qaulify
for a larger loan. ARMs always have quoted indexes and margins.
Indexes (the basis for a paticular ARM) almost never vary from
lender to lender, while Margins (the add-on index used to determine
your adjusted rate) vary widely.
Loans- Loans that do not necessarily conform to property or
credit standards set by investors. Those loans are generally regaurded
as higher risk loans and carry higher cost, both for interest
rate and discount points.
Ballon Loans- Loans that require complete repayment at
the end of the term. The loans can be refinanced and many have
conversion options at the end of the term. Ballon loans can offer
huge savings over thirty year fixed-rate loans and may be preferable
for conventional buyers that will only be in the home for three
to seven years.
Conforming Loans- Loans or properties that meet the requirements
of standard investor loan programs.
Discount Points- An added loan fee charged by a lender
to make the yield on a lower than market interest VA or FHA loan,
competitive with a higher-interest conventional loan.
Good Faith Estimate- A preliminary accountig of expected
closing cost required by RESPA for all lenders to submit to potential
Non-Owner Occupied-Term used for second or vacation homes,
but mostly properties to be held for investment or rental. Non-owner
loans generally carry higher interest rates and require a greater
Penalty- The amount set by the creditor as a penalty to the
borrower for paying off the debt before it matures; an early withdrawal
Pre Qualifying- When a lender helps the home buyer to determine
the purchase price, type of loan, and payment they can qualify
for. A home buyer will qualify for different purchase prices under
different loan programs.
Premium Points- The opposite of discounts. By agreeing
to accept a higher than market interest rate, lenders can help
you with closing cost. There are specific guidelines outlining
exactly how much a lender can pay.
Private Mortgage Insurance- PMI is required on all conventional
loans greater than 80% loan to value. This is similar to the FHA
Mortgage Insurance Premium but applies to conventional loans only.
A 20% down payment is required to avoid paying PMI on your loan.
Ratios- The Front End Ratio is the proposed PITI (principle,
interest, taxes, and insurance) divided by the borrower's qualifying
income. The Back End Ratio is the proposed PITI plus monthly recurring
debt divided by the qualifying income. FHA ratios are 29% to 41%,
while most Conventional ratios are 33% to 38%. FHA, VA, and Conventional
loans now have computer underwriting that does allow higher ratios
depending on a variety of circumstances.
Residential Mortgage Credit Report- This credit report
combines the information from three major credit bureaus, generally
Experian, Trans Union, and Equifax. Information regarding rental
history is usually verified.
Settlement Statement- A document often referred to as the
HUD-1, which shows all the buyers and sellers involved in the
transaction, the purchase and sales cost.
Secondary Market- The place where loans go when they are
sold. The majority of all mortgages are sold into the secondary
market. The secondary market sets the standards for the loans
that will be purchased. Different types of loans are sold into
different types of secondary markets.
Mortgage- A mortgage (or trust deed) that is junior or subordinate
to a first mortgage; typically, an additional loan imposed on
top of the first mortgage, taken out when the borrower needs more
Seller Paid Closing Cost- With most Convential and VA loans,
sellers can pay a portion of the buyer's closing cost. In real
estate negotiations, Seller Paid Costs can be substituted for
an reduction in sales price.FHA has strict limitations on Seller
Survey- On most properties (not Condos), a survey is preformed
to certify that the metes and bounds (ìlegal descriptionî)
of the property agree with the recorded instruments. Easements
and flood certifications are also checked.
Title Insurance- Required by all Lenders, title insurance
insures the conveyance of title process. Title insurance is usally
paid by the buyer.
Title Policy- Also required by Lenders, the title policy
insures the title against defect. The title policy assures the
lender that good and clear title is secured.
Truth in Lending- The Lender's requirement, usally within
three days of loan application to disclose to you the ìannual
percentage rateî. The APR reflects the cost of your mortgage
loan as a yearly rate .This rate is generally higher than the
note rate as it includes most loan costs.
The process where an underwriter approves the loan certfying that
it meets the investment criteria. Property appraisals are also
VA Loan- A mortgage strictly for Vetrans and active U.S.
Military. A VA loan can be done with no down payment and have
the closing cost paid by the seller or lender.
Variable-Rate Mortgage- A mortgage in which the interest
rate varies in accordance with an agreed-on base index, thus resulting
in a change in the borrower's installment payments.