Speaking The Language of Mortgage Loans

When visiting a foreign, exotic location, you always try to learn at least the basic terms of the country. Well, one could argue that the mortgage industry is definitely a foreign world. Before visiting, you should have an understanding of the following terms.

Amortization occurs with every loan, but is a misunderstood concept. It simply refers to the repayment of the loan on a schedule. The schedule is typically monthly payments over a term of years.

Talk to a mortgage professional and they will soon utter the phrase “pity”. Nope, it is not an evaluation of your loan. It is really “PITI”. It means principal, interest, taxes and insurance, to wit, a global figure for the obligation you are undertaking.

When is the best time to start the loan process? This is a common question and leads us to the term pre-approval. You want to get pre-approved for a loan and lock in an interest rate. This allows you to shop for a home knowing exactly what you can spend.

The mortgage application is pretty much what it sounds like. It should be viewed, however, as only the first step in the process. You can expect the lender to ask for additional information and documentation.

The adjustable rate mortgage, better known as an ARM, is a common mortgage loan that has an interest rate that adjusts according to some index such as LIBOR. The interest rate can go up or down, but usually has a cap on how much it can move in a certain period of time.

There are a number of quasi-government lenders. Fannie-Mae is one. It does not lend to the public directly, but guarantees loans made by lenders to certain types of lenders, often first time buyers or low-income borrowers.

Lenders evaluate potential borrowers in many different ways. The loan-to-value ratio is one of them. It is the requested loan amount divided by the appraised value of the property.

Depending on the part of the country you are in, the conclusion of the real estate transaction will be known as closing or settlement. The property is transferred and you formally take on the mortgage debt. It is both a glorious and stressful day!

In evaluating the merits of a borrower, lenders look to many different aspects of your financial profile. The “debt-to-income ratio” is one. It represents your total house expenses compared to your income.

Obviously, this represents only an introduction to the terminology of the mortgage industry. That being said, you can cut down on the confusion associated with it if you simply take the time to learn the language.

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