Speaking The Language of Mortgage Loans

Whether applying for your first loan, second or refinancing, the mortgage application process can be overwhelming. Understanding the language of mortgages is a first step to understanding it.

The first thing to understand about the mortgage application process is the subject of origination. This is the filling out of the application, rounding up and supplying of documentation, verification of employment and checking of credit history.

The annual percentage rate is often thought of as just the interest rate on a loan. This is incorrect. It is really a calculation taking into account the interest rate, points, cost of mortgage insurance and other fees associated with the loan.

As a buyer, you are going to be asked to put down an earnest money deposit. This essentially tells the seller you are serious about the purchase. The deposit then becomes part of the down payment when closing occurs. Make sure to notify the lender of the amount.

With rising energy prices and global warming concerns, the government is offering energy related mortgages. The Energy Efficient Mortgage is an FHA program that provides money to make your home energy efficient and has low borrowing costs.

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.

The mortgage industry is full of terms that sound rather drastic such as underwriting. This simply refers to the evaluation process by an underwriter at the lender. These days, it is often a piece of software. It takes all your information, crunches the number and approves or rejects the loan.

A mortgage loan is really a calculation of risk. Some lenders try to lower their risk by requiring borrowers to maintain a “cash reserve”. This is an amount of money held in a bank account and is often equal to three months of your total expenses.

Timing is a big issue in the world of mortgages. Specifically, rates change on a daily basis. To avoid this problem, you want to “lock in” your interest rate when a lender approves you. The cost is usually a few hundred dollars.

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.

Visiting a country where you don’t understand a word being said can make you feel bashful and intimidated. The same goes with dealing with lenders. This can lead to unfavorable loans. Take the time to learn the lingo, and you can avoid such problems.

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