Mortgage Terms And Definitions

Mortgage Terms And Definitions

Mortgage Terms and Definitions
The mortgage process can be a​ little confusing if​ you​ aren't familiar with the​ terms used in​ the​ process .​
To help you​ out,​ here is​ a​ list of​ terms with corresponding mortgage definitions.
Broker: An independent mortgage professional that oversees the​ entire home loan process.
Lender: the​ business entity providing and funding the​ home loan.
Processor: Prepares your loan for underwriting .​
The processor makes certain your income is​ properly documented and verified,​ the​ appraisal is​ being performed,​ and title and escrow are opened.
Escrow: Works with title to​ certify payoff demands for all existing liens .​
Escrow is​ an​ independent group which disburses monies to​ all parties in​ the​ loan transaction and ensures full payment.
Title: Ensures both the​ borrower and the​ lender have a​ clean title on​ the​ home,​ guaranteeing to​ both parties there are no mistaken liens and that all existing liens on​ the​ home are scheduled to​ be paid and removed.
Underwriters: Make the​ decision to​ approve or​ deny the​ loan .​
Hired by the​ lender,​ their job is​ to​ review all aspects of​ the​ loan based on​ the​ lender's approval guidelines.
Automated Underwriting: a​ computer generated loan approval .​
This automated process only takes minutes and is​ the​ quickest path to​ approval.
ARM: Adjustable Rate Mortgage .​
An ARM has a​ fixed rate for a​ specified amount of​ time .​
After the​ initial term,​ the​ loan becomes adjustable and the​ rate can fluctuate depending on​ market conditions .​
ARM payments are initially lower than fixed rate payments .​
This is​ an​ excellent option for people with damaged credit,​ those who plan to​ sell their homes short term or​ who simply want to​ save money on​ their monthly payment.
DTI: Debt to​ Income Ratio or​ your total monthly debt in​ relation to​ your gross monthly income .​
For example if​ you​ have $2,​500 in​ total monthly debts with a​ total income of​ $5,​000,​ your DTI is​ 50% .​
The higher the​ DTI,​ the​ higher the​ lender's risk and 50% is​ typically the​ maximum allowable DTI.
Equity -- the​ amount of​ vested or​ owned interest in​ your property .​
Subtract the​ total balance owed on​ the​ property from the​ appraised value to​ determine your equity.
FICO Scores: Most lenders use the​ FICO scoring system to​ qualify borrowers .​
The FICO score is​ a​ number assigned from each of​ the​ three main credit repositories (Experian,​ Trans-Union,​ and Equifax) .​
This number is​ calculated based on​ your complete credit profile and takes into account late payments,​ balances on​ trade lines,​ inquiries for additional credit,​ judgments,​ bankruptcies,​ total debt,​ length of​ credit history,​ and more .​
The lower the​ FICO score,​ the​ higher the​ lender's risk.
LTV: Loan to​ Value Ratio .​
For example: a​ loan amount of​ $75,​000 on​ a​ home valued at​ $100,​000 equals an​ LTV of​ 75% .​
Your equity would equal $25,​000,​ or​ 25% .​
The higher the​ LTV ratio,​ the​ higher the​ lender's risk.
Stated Income: Your own statement of​ income on​ the​ application versus income that can be independently verified .​
Use of​ stated income is​ an​ excellent option for self-employed individuals or​ those with hard to​ prove income.
Getting a​ mortgage for a​ home purchase can be stressful .​
If you​ understand the​ lingo being used,​ you​ will find it​ less so.

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