In our previous posts, The ABCs of mortgage terms you should know, and More mortgage terms you should know, we covered quite a few basic mortgage terms. Today we’re concluding the series. Feel free to compile all of these terms to create a personalized guide for your clients.
Interest Rate: A percentage of a loan amount paid to the lender as the cost for borrowing money. A mortgage can have a fixed or adjustable interest rate.
Joint Loan: A mortgage loan with a co-borrower who is equally responsible to repay the loan.
Jumbo Loan: A mortgage that exceeds the insurable limits set by Fannie Mae and Freddie Mac. These limits vary depending on local market conditions. In Texas, a jumbo loan is a loan that is greater than $424,100.
KBYO (Know Before You Owe): The CFPB’s effort to help consumers understand their loan options, shop for a mortgage, and avoid costly surprises at the closing table via their Loan Estimate and Closing Disclosure forms.
Lender: Your lender is the person or institution granting you a mortgage loan. Lenders loan you money to buy a home, with the understanding that you will make regular payments, with interest, to pay off the loan.
LLPA (Loan-Level Pricing Adjustments): This is a risk-based fee assessed to conforming borrowers that varies based loan traits.
Loan Application: An application and its supporting documents used to determine a consumer’s eligibility for a mortgage.
Loan Approval: An approved loan is one which the lender has determined that a loan may be granted based on the information provided in the loan application. Loan approval does not guarantee a loan. The borrower must not have significant changes to income, debt or credit score between loan approval and closing and funding.
Loan Balance: The amount owed on the mortgage principal.
Loan Estimate: This form is provided to consumers within three business days after they submit a loan application. It provides a summary of the key loan terms and estimated loan and closing costs.
Loan Officer: The loan officer is responsible for matching a mortgage program to the borrower and processing the loan application.
Loan Term: Generally, the agreed-upon length of time used to pay off a loan. The loan term may change depending on the borrower's payment habits.
LTV (Loan-to-Value Ratio): The ratio of the loan amount compared to the actual value of the house. LTV are used to determine the mortgage insurance rates and costs that go with it.
MIP (Mortgage Insurance Premium): In order to qualify for an FHA-approved loan with less than a 20 percent down payment, borrowers are required to pay a mortgage insurance premium. This insurance protects lenders if the borrower defaults on the loan. It does not offer the borrower any protections.
Monthly Payment: Recurring payments to a mortgage loan. The amount paid is applied to the principal balance and interest, and is determined by the down payment, term, interest rate and size of the loan.
Mortgage: A loan that is used to buy a property.
Mortgage Closing: The final step in the transaction between a buyer and seller. This settlement meeting is when mortgage documents are signed, an application for a change of title is prepared, credits for HOA dues and property taxes are settled, and funds are transferred.
PITI (Principal and Interest plus Taxes and Insurance): PITI is compared to a borrower's monthly gross income for determining how much an individual borrow. Generally, lenders prefer PITI to be equal to or less than 28% of a borrower's gross monthly income.
HARP (Home Affordable Refinance Program): If a borrower is current on their mortgage, but has had difficulty refinancing, HARP could help lower the interest rate and mortgage payment, or help borrowers switch to a fixed-rate mortgage.
Origination Fee: A fee to meant to cover the costs of processing the loan.
Pre-approval: A certification from a lender stating that both a loan application and its supporting documents have been reviewed, and that a borrower is approved for a mortgage.
Prepayment: Payments made in excess of the amount due, thereby reducing the total amount of interest paid on a loan over time.
Pre-qualification: An estimate of the mortgage amount for which a borrower could be qualified.
Principal: The amount owed in order to pay back the money borrowed from the lender (excluding interest).
PMI (Private Mortgage Insurance): Private Mortgage Insurance is required in cases where the borrower will close on a property with less than 20 percent equity (known as high-cost mortgages). This protects the lender from default.
Property Tax: Property taxes that are paid to the local taxing authorities. In Texas, property taxes are determined as a percentage of the appraised value of the house. Taxing authorities include city, county, school districts, and special districts.
Property Title: A property title is recorded with the county and states who owns the property.
Reverse Mortgage: a financial agreement in which a homeowner exchanges the equity in their home for regular payments, typically to supplement retirement income. In Texas, reverse mortgages are only available to seniors aged 62 or older.
Second Mortgage: Second mortgages are loans taken out on the equity of a property that is already being used as collateral for a mortgage.
SFHA (Special Flood Hazard Area): Areas determined by FEMA to be at risk of flooding.
Subprime Mortgage: Mortgages made to borrowers with low credit scores who wouldn’t qualify for most other loans.
Title Insurance: There are two basic types of title insurance: the owner policy and the loan policy. The owner policy insures the owner against certain risks and typically provides coverage in the amount of the sales price. The loan policy insures that the lender’s lien is valid against the property and typically provides coverage in the amount of the loan.
TILA/RESPA Integrated Disclosure (TRID): The Truth-in-Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) rule created the new disclosure documents and extensive guidance regarding compliance with those requirements.
UETA (Uniform Electronic Transactions Act): Ensures the recognition of electronic signatures on documents across states.
UCDP (Uniform Collateral Data Portal): An online platform used by appraisers to submit reports for conventional loans.