Common Mortgage Terms
If you are new to home financing, you may be a little confused by some of the common terms that are used in the process. These common terms will help simplify getting your home loan and help you understand what stage you are at and what comes next.
The annual cost of a loan to a borrower. Like an interest rate, the APR is expressed as a percentage. Unlike an interest rate, however, it includes other charges or fees (such as mortgage insurance, most closing costs, discount points and loan origination fees) to reflect the total cost of the loan.
The process of spreading out a loan amount into a series of fixed payments to be paid off over a specified period of time. Part of each regular payment goes towards the loan principal and part towards interest.
An appraisal determines the home’s value to ensure that the price reflects the home’s condition, age, location, and features such as the number of bathrooms. Also, appraisals help banks and lenders determine how much to lend based on how much the house is worth in the current market.
This is the time and place at which the documents for your loan are signed, dated and notarized.
Fees and other costs that must be paid in connection with your loan.
This is the point at which the loan is complete and the terms become active. At closing everything will be signed and completed.
Your debt-to-income ratio is equal to your total fixed, recurring monthly debts divided by your total monthly gross household income. Mortgage lenders look at your DTI when they consider you for a loan to make sure that you have enough money coming in to make your payments. You may have trouble finding a loan if your DTI is too high. Most lenders cater to applicants who have a DTI of 50% or lower.
The annual cost of a loan to a borrower, usually expressed as a percentage. The interest rate does not include fees charged for a loan.
This is the time at which the proceeds from the loan are available or distributed for the benefit of the borrower.
This is a term that means you have been promised a certain interest rate for a certain time period.
A non-qualified mortgage (non-QM) is a home loan designed to help home buyers who can’t meet the strict criteria of a qualifying mortgage. For example, if you are self-employed or don’t have all the necessary documentation to qualify for a traditional mortgage, you might need to look at non-qualified mortgages.
This is an amount of money that a borrower can generally choose to pay to the lender to get a lower interest rate. A point equals one percent of the loan amount. This is usually paid at closing.
A lender’s conditional agreement to loan a specific amount of money to a homebuyer under a specific set of terms.
The process of providing financial and other information (such as employment history and proposed collateral) by a prospective borrower in order for the lender to preliminarily DETERMINE ELIGIBILITY FOR A MORTGAGE AND PRELIMINARILY estimate how much the borrower may BE ABLE TO obtain for the purchase of a home. A pre-qualification is not a commitment to lend.
The amount that is borrowed on the loan.
This is the length of time over which the loan will be repaid.
Information is subject to change without prior notice. All loans are subject to credit approval. This information is intended to furnish general information. It does not, and is not intended, to constitute legal, tax, or real property advice. This information may differ according to applicable laws and regulations. Please contact appropriate counsel to obtain accurate information for your situation.
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