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Learn The Meaning of
Mortgage Terms
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A
- Amortization
Gradual payment of a debt through regular installments that cover both interest and principal.
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- Annual Percentage Rate (APR)
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A measure of the total cost of credit (interest as well as other recurring charges) expressed as a yearly percentage rate. All lenders apply the same rules in calculating the annual percentage rate, giving consumers a good basis for comparing the cost of loans.
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- Appraised Value
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An option of the value of a property at a given time, based on facts regarding the location, improvements, etc., of the property and surroundings.
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- Assets to Close
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Assets to Close is the amount of cash or equivalent that can be used for a down payment and closing cost.
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B
- Balloon Term
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Balloon loans have a payment based on a longer amortization, but are all due and payable in full after a specified period of time indicated in the Promissory Note. When the note matures, the principal balance outstanding is due in full. We can help with five and seven year balloon loans with payments based on a 30-year amortization. Please refer to conventional loan product descriptions for details about Balloon loan programs.
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- Bankruptcy
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There are several types of Bankruptcies (chapter 7,9,11,13, etc).
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- Bi-Weekly Mortgage Payments
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Every 2 weeks, one half of your present monthly payment is electronically debited from your bank to a Trust Account. Your mortgage payment is then paid on your due date for you*. Over the course of a year, by paying one half of your present monthly payment every 2 weeks, approximately every 6 months additional dollars accumulate in the Trust Account for you. These dollars are applied to your principal, accelerating your equity build-up. By using this method, you make the equivalent of 13 payments over the course of a year. *Interest is not credited to the client during this transaction period.
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C
- Cash Out Refi
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If applicable please indicate if you intend to receive cash back from the refinance of your property.
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- Closing Costs
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Closing cost vary by region and lender. The closing costs are based on an 80% loan-to-value ratio and are 2.5% of the Maximum Loan Amount.
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- Credit Rating
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A+ to A- Considered the best credit rating. FICO scores are generally 620 and up with no lates on mortgage and one 30 days late on revolving or installing credit. No bankruptcy within past 2-10 years.
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B+ to B- General good credit with FICO scores from 581 - 619. Two or three 30 days late on mortgage and two to four 30 days late on revolving or installment credit. Cannot have any 60 day lates. Must be 2-4 years since bankruptcy discharge.
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C+ to C- Fair credit with FICO scores from 551-580. Three to four 30 days late on mortgage are allowed. Installment or revolving credit can have four to six 30 days late or two to four 60 days late. Must have 1-2 years since bankruptcy discharge.
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D+ to D- Overall poor credit history with FICO scores from 550 and lower. Two to six 30 days late on mortgage or one to two 60 days lates with isolated 90 days late. Revolving and installment lates show poor payment record with pattern of late payments. Possible current bankruptcy or foreclosure allowed with all unpaid judgments to be paid with loan proceeds. Must have stable employment.
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- Current Housing Expenses
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This may be rent or the full payment to an existing mortgage lender including principal and interest, the monthly amount of taxes and insurance, any condo/homeowner fees and special assessments.
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D
- Debt-to-Income Ratio
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The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her gross monthly income.
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- Down payment
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Cash to be paid by the buyer at closing to consummate a real estate transaction.
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E
- Estimated Taxes
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Most real estate is assessed an annual tax, commonly called real property taxes. Local municipalities have various methods to calculate real property taxes, making it difficult to accurately determine the taxes in your area. The Home Purchase Power Calculator estimates the property taxes, but you can input a different amount based on the tax bill of the subject property. Make sure you divide the annual tax by 12 for the monthly amount.
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F
- Financing Concessions
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Many home purchases involve payment of a buyer's closing costs by the seller/builder and/or real estate agent. If you have a purchase contract for a home that contains provisions for either of these parties to pay some or all of your loan costs, please enter the total amount of those payments.
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- Foreclosures
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A foreclosure occurs when a borrower is unable to make the monthly payments or otherwise defaults on the terms of a real estate mortgage and the lender, through a legal proceeding, takes ownership of the property. A Deed-in-Lieu of Foreclosure occurs when a loan is in default and the lender agrees to accept title to the property from the borrower by deed instead of going through the foreclosure process. If you have had a property foreclosed or if you have given a deed-in-lieu of foreclosure in the past seven years, please select "YES".
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G
H
- Hazard Insurance
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A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.
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- Homeowner's or Maintenance Fees
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Payments made by property owner(s) of a condominium or a unit in PUD to the homeowners' association for expenses incurred in upkeep of the common areas.
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- Housing Expenses
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These include the monthly principal and interest payments that are stipulated on the mortgage note. In addition, the monthly housing expenses include a monthly amount for the property taxes and hazard insurance (1/12 of the annual taxes and insurance). There may be other expenses, such as condominium fees, homeowners fees, special assessments, etc., that are included.
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I
- Income to Debt Ratios
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Primary Housing Expense (PHE)/Income Ratio (I): This ratio is the result of dividing the housing expenses for the proposed loan by the monthly income of the borrower(s).
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Total Obligations (TO)/Income Ratio (I): This ratio is the result of dividing the housing expenses for the proposed loan plus the borrower(s) other monthly credit obligations by the monthly income of the borrower(s).
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- Initial Interest Rate
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Typically one to three percentage points lower than that of most fixed-rate mortgages. Lower interest rates also make ARMs somewhat easier to qualify for. The initial interest rate is tied to certain economic indicators that dictate in part what the monthly payments will be.
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- Insurance
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Mortgage lenders require hazard insurance on a property used as collateral for the loan. Insurance cost varies from region to region and by the magnitude of coverage. The Home Purchase Power Calculator estimates the insurance cost, but you can input a different amount based on you your insurance coverage preference or from your current Home Owners Policy. Make sure you divide the annual premium by 12 for the monthly amount.
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- Interest Rate
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The percentage of an amount of money which is paid for its use for a specified time.
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J
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L
- Lien Priority
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Mortgage liens can have different priorities on residential real estate. A first lien is considered a higher priority than a second lien.
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- Liquid Assets
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These are funds that can be used for a down payment and closing cost. These assets can be converted to cash or cash equivalent. Examples are listed below:
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Checking and Savings Account
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Money Market Accounts
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Exchange traded stocks and bonds
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Equity from a pending sale of real estate
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Gifts (not to be paid back)
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- Loan-to-Value Ratio
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The ratio of the mortgage loan amount to the property's appraised value or selling price, whichever is less.
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- Loan Type
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We can help with conventional, FHA and VA loan programs. If you need further explanation, proceed to the product descriptions for each loan type.
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M
- Market Value
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The most likely price a given property will bring if widely exposed on the market, assuming fully informed buyer and seller.
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- Minimum Payment
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The minimum amount that you must pay (usually monthly) on your account. In some plans, the minimum payment may be "interest only." In other plans, the minimum payment may include principal and interest.
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- Monthly Income
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One of the most important components of the loan underwriting process is determining the borrower's monthly income. The income of all borrowers and co-borrowers is included in the calculation. The income can be derived from several sources, but it must be supported by historical documentation and have a high likelihood of continuation.
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- Monthly Debt Obligations
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These include monthly credit obligations, such as installment payments, revolving charge cards or other borrower obligations that will continue longer than 10 months. Usually, 5% of the current balance of a revolving charge account is used for the monthly payment.
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- Mortgage
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A lien or claim against real property given as security for a loan. It is a two party agreement as opposed to tri-party agreement of a deed of trust.
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- Mortgage Loan Amount
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The mortgage loan amount is based on the monthly principal and interest payment, rate of interest, and term of the loan. Altering the taxes, insurance, debt, interest and term will recalculate the loan amount.
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- Mortgagee
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The lender of money or the receiver of the mortgage document.
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- Mortgage Insurance
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Insurance required for a loan-to-value ratio above 80.01%.
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O
- Occupancy
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Lenders provide financing on owner-occupied primary homes, owner-occupied second or vacation homes and non-owner occupied homes.
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P
- Plan Types
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Mortgage loans have a number of possible repayment structures or plans including Fixed Rate, Graduated Payment and Adjustable Rates. Please refer to the conventional, or FHA or VA loan product descriptions for details about these variations.
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- Points
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Origination fees charged are the originating lender or broker and/or discount fees charge by lenders to increase the overall yield. A point is equal to one percent of the principal amount of your mortgage.
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- Prepaid interest
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Prepaid interest is the interest charged to borrowers at loan closing to pay for the cost of borrowing for a partial month. For example, if a loan closes on the 15th of the month and the first payment is due 45 days later, the lender will charge 15 days of prepaid interest.
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- Principal Loan Balance
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Face amount of a loan evidencing the amount repayable, exclusive of interest, according to the terms of the note securing the obligation.
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- Principal and Interest (P&I)
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The principal and interest is the monthly payment needed to repay the mortgage loan over a predetermined period. After deducting the monthly taxes, insurance, and debt from the Total Monthly Obligation, the mortgage payment is calculated based on a 30 year fully amortizing loan and the current 30 year mortgages rates of Lenders with a 1 point origination fee.
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- Property Rights
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Property rights include fee simple and leasehold. Fee simple is the highest form of ownership and is the most common form of ownership or property right.
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- Property Tax
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A tax levied by the local municipality or county on real and personal property.
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- Sales Concessions
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In some home purchase transactions, seller/builders and/or real estate agents offer special incentives to prospective buyers (e.g., a new car or boat; a trip; club membership dues; cash credits for upgrades in carpeting or other buyer preference items). If you have purchase contract for a home that contains provisions for incentives such as these.
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- Secondary Finance
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If there will be a second mortgage used to assist in financing the acquisition of the subject property, please enter the amount of that loan. Proceeds from a second can come from a loan from the seller/builder, a private party or from another lender. (Note: Special qualification requirements are applicable when secondary financing is used.)
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- Self Employed
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If you own 25% or more of the company by which you are employed, you are considered self employed for loan purposes.
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T
- Total Assets
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Asset examples are listed below:
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Checking and Savings Account
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Money Market Accounts
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Exchange traded stocks and bonds
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Real Estate
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Autos
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Personnel Items such as furniture, jewelry, etc.
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Cash Value of Life Insurance
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Retirement Fund (IRA, 401k, etc).
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- Total Liabilities
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Liability examples are listed below:
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Credit Debt (Visa, MasterCard, department store charge cards)
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Installment Debt (bank loans, auto loans, boat loans, etc)
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Real estate loans
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Pledges, personnel notes, etc.
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- Total Monthly Debt
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Monthly debt obligations may include monthly payments on:
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Other real estate loans, but not
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payments on loans being repaid if this is a refinance loan
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payments on loans being repaid from the sale of an existing home
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Installment loans
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Revolving accounts
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Child support and separate maintenance (alimony) paid to a former spouse
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Do not include payments on rental real estate mortgages that have been deducted from the income noted in the Total Monthly Income section.
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- Total Monthly Income
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Total monthly income for all persons included can include:
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Wages
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Workman's Compensation or permanent disability payments
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Retirement and Social Security income
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Net Income from Self Employment (Schedule C net income)
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Income from Trusts, if continuing for at least three years into the future
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Income from Partnerships, Professional Corporations or Sub-S Corporations
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Commissions
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Bonuses, if they are continuing
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Interest and dividends
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Rental income after deducting expenses and debt payments
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Other investment income
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Income from child support and/or separate maintenance (alimony) and public assistance programs need only be disclosed if you intend to use it for loan qualification purposes.
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- Total Monthly Obligations
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A key ratio used in the underwriting process is the relationship between the borrower's monthly income and their total monthly obligations. The ratio is determined by dividing the total monthly obligations by the total monthly income. There are many factors used in the underwriting process and mortgage lenders generally follow the underwriting guidelines of FNMA and FHLMC. Typically this ratio should not exceed 36% to 38%. The Home Purchase Power program determines the total monthly obligations using a ratio of 38%. The figure is calculated by multiplying the total monthly income by 38%. Total monthly obligations include:
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The monthly mortgage payment (principal and interest)
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Taxes and insurance
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CONDO/PUD fees, if applicable
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Monthly installment and revolving debt
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Other recurring obligations
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