If you don't know the terms used in the mortgage process, it can be hard to understand what's going on. Here is a list of mortgage terms and what they mean, to help you out.
Brokers are independent mortgage professionals who handle the whole process of getting a home loan.
Lender: The business that gives the home loan and pays for it.
The processor gets your loan ready for the underwriter. The processor makes sure that your income is properly verified and documented, that the appraisal is done, and that the title and escrow are opened.
Escrow works with the title to make sure that all existing liens are paid off. Escrow is a separate group that sends money to everyone involved in a loan transaction and makes sure that everyone gets paid in full.
Title: Makes sure that both the borrower and the lender have a clean title on the home. This means that there are no mistaken liens and that all liens on the home are scheduled to be paid and removed.
Underwriters decide whether or not to give the loan. The lender hires them, and their job is to look over every part of the loan based on the lender's rules for approval.
Automated Underwriting is when a computer approves a loan. The fastest way to get approval is through this automated process, which only takes a few minutes.
ARM stands for adjustable-rate mortgage. A fixed rate is set for a certain amount of time on an ARM. After the initial term, the loan's rate can change depending on how the market is doing. At first, payments for ARMs are less than payments for fixed rates. This is a great choice for people who have bad credit, plan to sell their home soon, or just want to save money on their monthly payment.
DTI stands for "Debt to Income Ratio," which is how much you owe each month compared to how much you make each month. If you have total monthly debts of $2,500 and a total monthly income of $5,000, your DTI is 50%. The risk for the lender goes up as the DTI goes up, and the most that can be allowed is usually 50 percent.
Equity is the amount of your property that you own or have a right to. To find your equity, take the appraised value and subtract the total amount you still owe on the property.
Scores from FICO: Most lenders use the FICO scoring system to decide if a borrower is qualified. The FICO score is a number that comes from the three main places where credit information is kept (Experian, Trans-Union, and Equifax). This number is based on your whole credit profile, including late payments, balances on trade lines, requests for more credit, judgments, bankruptcies, total debt, length of credit history, and more. The risk for the lender goes up as the FICO score goes down.
LTV: Loan to Value Ratio. For instance, a loan of $75,000 on a home worth $100,000 is equal to an LTV of 75%. Your total equity would be $25,000, or 25%. The risk for the lender goes up as the LTV ratio goes up.
Stated Income is the amount of money you say you make on the application, as opposed to income that can be checked by someone else. People who work for themselves or who have income that is hard to prove can use "stated income."
Getting a mortgage to buy a home can be a stressful process. If you know what's being said, you'll find it less strange.
