Mortgage Loan Officer Terms and Definitions
The mortgage industry is full of terms that are foreign to many people. The following glossary of terms should help you translate the mortgage language into English and help you make sense of the mortgage process.
Appraisal
- An expert opinion on the value of a property
Annual Percentage Rate
- This is not the note rate applied for, but rather is a government mandated formula that shows the cost of the loan in a yearly rate by using the note rate plus certain other upfront costs
ARM Loan
- Adjustable Rate Mortgage. Mortgage characterized by an interest rate that can adjust up or down at certain intervals based on a current index (commonly the 1 year T-Bill) plus a preset margin.
Balloon
- Mortgage characterized by level fixed payments for a predetermined time frame followed by either a refinance or adjustment in interest rate
Capital Gains
- The tax paid upon certain types of real estate transactions. Contact accountant for specifics (see links for details)
Cash to Close
- The amount needed from the borrower at closing. Consists of down payment, closing costs and prepaid items. This amount needs to be in the form of a cashier check made payable to the buyer.
Closing Date
- Date stated on the purchase agreement that buyer and seller agree to finalize or close the transaction
Closing Costs
- Various costs of setting up and funding the transaction - including closing fee, title insurance, appraisal fees, underwriting fee, mortgage registration tax etc.
Condo/Town Home
- Property types that usually have the following characteristics: they are attached, have a homeowners association and dues, the outside maintenance is taken care of by the association, and common areas and amenities available to all owners in the association.
Conventional Financing
- Standard, non-government financing.
Credit Bureaus
- Agencies that provide compilations of your credit history. The three main credit bureaus are Experian, Trans Union, and Equifax
Credit Report
- Report provided by the credit bureaus which shows the history, current status, and profile of an individual
Credit Scores
- The number generated by the credit bureaus which is a numerical representation of the subjects credit profile, range is from 450 on the low side to 900 being the highest score possible.
Debt Ratios
- Ratio of debt to pretax income, often expressed as a front (housing payment only) or back (all debt) ratios. Ex- $5000 monthly income, $1400 housing payment, $1700 total debt would equal ratios of 28%/34%.
Discount Points
- One point equals one percent of the loan amount. Points are used to lower the interest rate. One point does not equate into lowering the interest rate one percent. Generally lowering the interest rate 1/8 will cost about 1/2 point, although this can vary based on daily pricing. Typically is tax deductible. (see Links for accountant advice)
Down Payment
- Difference between loan amount and purchase price.