Mortgage Terminology Explained

Mortgage Terminology Explained
When you​ first apply for a​ mortgage,​ you​ may feel you’ve stepped into a​ different culture with a​ language all its own .​
More than likely,​ your mortgage professional is​ throwing many new terms and expressions your way .​
It’s the​ responsibility of​ that same mortgage professional to​ make sure you​ understand everything that’s being explained to​ you,​ so you​ should never hesitate to​ ask them to​ stop and clarify .​
However,​ if​ you​ can approach your application meeting armed with some familiarity with mortgage terms,​ everyone can be more comfortable from the​ very beginning .​
Familiarize yourself with the​ following and you’ll be a​ step ahead of​ the​ average first-time borrower.
HUD: HUD stands for Housing and Urban Development,​ and refers to​ the​ US Department of​ Housing and Urban Development Settlement Statement documents pertaining to​ the​ house being financed .​
When your loan officer talks about having you​ sign the​ HUD,​ they are referring to​ that settlement statement .​
The HUD will detail all payoff information,​ including any fees associated with your mortgage loan.
LTV and CLTV: LTV and CLTV stand for Loan to​ Value and Cumulative Loan to​ Value (or Combined Loan to​ Value) .​
LTV refers to​ the​ percentage of​ the​ home’s value that is​ being financed .​
Thus an​ $80,​000 loan for a​ $100,​000 home constitutes 80% LTV .​
Higher LTV loans may carry higher interest rates and mortgage insurance than lower LTV loans .​
CLTV refers to​ the​ combined amount being financed between two loans for the​ same property .​
If the​ $100,​000 home mentioned above has a​ first mortgage of​ $80,​000 and a​ second mortgage of​ $20,​000,​ the​ LTVs of​ those loans would be 80% and 20% respectively for a​ CLTV of​ 100%.
Designation 80/20: Designation 80/20 in​ the​ same line of​ thought,​ refers to​ the​ technique of​ obtaining 100% financing for a​ borrower without using a​ program that offers 100% in​ one loan .​
80/20 refers to​ the​ percentage of​ the​ home that will be financed with each loan,​ 80% with the​ first mortgage and 20% with the​ second mortgage .​
80/15s,​ 80/10s,​ and so on​ are also available and are options you​ should consider under the​ advisement of​ your loan officer or​ financial planner.
Stips: Stips are stipulations,​ and they are the​ requirements handed down by your lender and its underwriting department in​ order for your mortgage to​ be cleared to​ close .​
Common stips are copies of​ pay stubs,​ bank statements,​ and verifications of​ rent and employment.
VOR and VOE: VOR and VOE stand for Verification of​ Rent and Verification of​ Employment .​
Both may be required by your lender in​ order for your loan to​ be approved .​
Not all lenders and not all loans require either one of​ these.
HELOC: HELOC,​ while not something you​ will probably hear during your first mortgage experience,​ is​ one of​ the​ most common mortgage acronyms .​
It refers to​ a​ Home Equity Line of​ Credit,​ which is​ one option borrowers have for taking equity out of​ their homes .​
With a​ HELOC,​ borrowers can draw up to​ the​ full amount of​ the​ loan as​ many times as​ they choose,​ paying down all or​ part of​ the​ amount and drawing it​ back out again .​
In this way,​ a​ HELOC is​ a​ loan similar to​ a​ credit card,​ except that the​ interest paid on​ a​ HELOC is​ tax-deductible.
This is​ not a​ comprehensive list of​ the​ new terminology you​ may encounter when securing a​ mortgage,​ but familiarity with these terms will help you​ understand what your loan officer or​ financial planner is​ talking about when it​ comes time to​ finance a​ home.

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