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Mortgage Glossary: You Need To Know
When you are looking to purchase a home and will be involved in the mortgage industry, for most, it is an industry that they really aren’t familiar with. Given the uncertainty of what you are about to get into, I think it would be a great idea for you to have a Mortgage Glossary that can help you along the way should you have any questions as to what a specific term or form might be. If you are looking for a new home then you need to know you can always call me any time day or night and I can answer questions you may have about the mortgage process. If there is a time that you do not want to call or email me, please bookmark this Mortgage Glossary as it can be a big help. Also remember to share this Mortgage Glossary with friends and family as I want everyone who needs a mortgage loan to be prepared and informed about every decision they may need to make along the way. I want all my clients to feel comfortable with the entire process from start to finish. With that, let’s get to the list!
Mortgage Glossary: Important Terms
- Adjustable Rate Mortgage: A home loan where the interest rate changes periodically based on a standard financial index.
- APR or Annual Percentage Rate: This is the standardized way of calculating the cost of a mortgage. It will be higher than the interest rate quoted for your loan because it includes mortgage insurance and other credit costs.
- Appraisal: Qualified appraiser determines the value of a property.
- Automated Underwriting System (AUS): A computer generated mortgage loan decision based on the application being provided.
- Balloon Mortgage: A mortgage where payments are made for a set amount of time ranging from 3-10 years. At the end of the specified time, a lump sum of the remaining balance is due.
- Closing Costs: Expenses incurred in a real estate sale transaction by the buyers and sellers which can include origination fee, taxes, escrow, etc.
- Collateral: Property used to secure a debt and what will be taken if you fail to make payments on the debt.
- Debt to Income (DTI): The total amount of monthly debt divided by your gross monthly income.
- Down Payment: The amount of the property’s purchase price that the buyer pays in cash at closing of the loan. Down payments can be as low as 3-3.5% depending on FHA or Conventional Loan.
- Escrow: A third-party which holds documents and money for a real estate transaction.
- Fixed-Rate Mortgage: A home loan where the interest rate remains the same for the entirety of the loan and the principal and interest payment per month will not change.
- Good Faith Estimate (GFE): A written estimate of expected closing costs that needs to be given to borrower within 3 days of submitting a home loan application.
- Home Owner’s Association (HOA): An organization that oversees the dealings within a certain community and is supported with HOA Fees on a monthly, quarterly, or annual basis.
- Jumbo Mortgage: A mortgage that exceeds the conforming limits.
- Mortgage Insurance: A policy that compensates a lender against default and is normally included on a loan where there isn’t at least 20% equity in the home or an 80% loan to value ratio.
- PITI or Principal, Interest, Taxes, Insurance: The components of a mortgage payment that includes all fees on top of principal and interest.
- Pre-Approval: A determination of how much a potential borrower can afford after going through their credit history and other financial resources.
- Prepayment Penalty: The fee charged to a borrower if they pay off a loan earlier than the prescribed payment schedule.
- Processor: A loan processor expedites the process between the loan officer and the underwriter. They will be in charge of getting all the necessary paperwork for underwriting to make a decision.
- Reserves: Assets such as cash and investments that are needed to be shown in order to close a loan. Normally 3 months of reserves is going to be needed.
- Underwriter: The underwriter ensures your financial profile and history and will issue an approval given all their conditions are met.
Hopefully this Mortgage Glossary can be a useful tool for you going forward in your mortgage transaction. If you need clarification on any of these items or additional items, please feel free to give me a call at 888-900-1020, email me at firstname.lastname@example.org, or visit www.loanconsultants.org.
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