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.
