Mortgage Cheat Sheet

Financing a Mortgage will more than likely be the best & largest purchase of your life. The below terms will help you understand some of the common words used doing the mortgage process.

Mortgage Terminology:

Additional Principal Payment
A voluntary payment of more than the scheduled principal amount due in order to reduce the principal. This also enables the borrower's future interest payments to be reduced.
Adjusted Rate Mortgage (ARM)
Short for "adjustable rate mortgage". It is a mortgage on which the interest rate is not fixed for the entire life of the mortgage. The the interest rate on the note periodically adjusted based on an index which reflects the cost to the lender of borrowing on the credit markets.
Annual Percentage Rate (APR)
Annual Percentage Rate is the annual rate that is charged for borrowing, shown as a single percentage number. The APR is mainly based on your credit score.
A mortgage loan with the interest rate on the note periodically adjusted based on an index. Annually based on the 1 year Treasury Bill, plus a 2% margin
Amortization
Amortization is a loan with scheduled payments of both principal and interest. An amortization schedule is used for loans whose payoff date is known, such as a mortgage, car, or boat loan.
Application Fee
Application Fees differ among lenders and can be up to $500. This fee is just for doing business with the lender. They are often not refundable.
Appraisal
Essentially, this is the determination of the value of a house. The evaluation is required by the lender and prepared by the lender’s choice of an objective and impartial professional appraiser. The appraisal may not be the same amount as whatever selling price a real estate agent may have calculated. If the appraisal is lower, the buyer and seller have several options, including lowering the asking price
Commitment Letter
This letter means the borrower has passed their underwriting guidelines and that the lenders are willing to offer the borrower a home loan. In a nutshell, a loan commitment letter is an indication that the buyer's home loan has been approved by the lender.
Comparative Market Analysis (CMA)
A determination of a home’s market value for the purpose of determining a fair asking price. Real estate brokers compile the CMA by comparing the subject house to those that have recently sold within close proximity. Many times a buyer will request a CMA to ensure she is not overpaying for a house. Although the CMA is similar to an appraisal, it will not replace a lender-required appraisal
Credit Rating Bureaus
There are three major credit reporting agencies (also sometimes referred to as credit bureaus). Experian, TransUnion, and Equifax.
Credit Report
Is a report detailing a person's financial history specifically related to their ability to repay borrowed money. The report contains a score ranging from 300 to 850, with higher scores being better.
Fair Credit Reporting Act
The Fair Credit Reporting Act (FCRA) is a United States federal law that regulates the collection, dissemination, and use of consumer information, including consumer credit information.
FHA Loan
This is a loan tendered by a traditional lender but insured by the Department of Housing and Urban Development and administered by the Federal Housing Administration. FHA offers several home loan programs, some offering low down payments, others to assist buyers of fixer-upper properties. FHA does not provide loans — it provides insurance for loans
FICO Scores
A person's credit score calculated with software from Fair Isaac Corporation (FICO)
Fiduciary Duty
The broker under which your real estate agent works is your fiduciary. They are held to specific duties, outlined by state law, to their principal. Some of these duties include disclosure, confidentiality, reasonable care and diligence and loyalty
Good Faith Estimate (GFE)
An estimate of the fees due at closing for a mortgage loan that must be provided by a lender to a borrower within three days of the lender taking a borrower's loan application. A good faith estimate is required by the Real Estate Settlement Procedures Act
Hazard Insurance
Protects a property owner against damage caused by fires, severe storms, earthquakes or other natural events. As long as the specific event is covered within the policy, the property owner will receive compensation to cover the cost of any damage incurred.
Jumbo Loan
The funniest name in home loans. Jumbo Loan means the loan is for an amount excedding the statutory limit placed on Fannie Mae and Freddie Mac can purchase.
Loan-to-Value Ratio (L/V)
The Loan-to-Value Ratio is the relationship between borrowed and appraised value (sale price) of a property: Loan amount ÷ Price (or value) = L/V ratio
Origination fees
Origination fees are fees charged by a lending provider to cover the costs of issuing and reviewing the loan (credit checks, appraisals)
PITI
Principal, Interest, Taxes and Insurance payments (on a mortgage)
Points
A point is a fee equal to 1 percent of the loan amount.
Discount Points
Discount Points are prepaid interest on a loan. The more points you pay - the lower the interest rate on the loan becomes. Borrowers can pay 1 - 4 points depending on how much they want to lower their interest rate. Discount Points can be tax-deductible.
Preapproval
This is when a mortgage lender approves a prospective and targeted buyer often based on credit for a specific loan.
Prequalification
Prequalification is when a mortgage lender estimates the most expensive home a buyer can afford based on the buyer’s income & credit. The lender then provides the buyer with a price range.
Private Mortgage Insurance (PMI)
Additional insurance on loans provided by private mortgage insurance companies; the Homeowners Protection Act of 1998 allows PMI to be cancelled when the amount owed reached less than 80% of the debt of the home’s value and is automatically cancelled when the loan principal is less than 78% of its original cost.
VA Loan
These loans are offered by the Department of Veterans Affairs exclusively to members of the military. Veterans, those on active-duty and reservists are all considered as eligible to apply for VA loans, which typically require no down payment



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