BASIC LOAN TERMS
Mortgage: A legal document, which transfers title of a property to a lender as securitfor payment of a debt. The owner retains possession and use of the property.
Equity: The difference between what the home is worth and what is owed. Example: If a home is worth $100,000 with $80,000 in mortgages, there is $20,000 in equity.
Loan to Value (LTV): This is a ratio of the “loan amount” over the “value” of the property. Example: If the maximum LTV on a particular loan program is 90%, then the maximum amount they will lend for a $100,000 home is $90,000.
1st Mortgage: The mortgage on the property holding senior priority and the first to be paid in the event of a foreclosure. Clients may refer to this as their primary mortgage.
2nd Mortgage: A mortgage that ranks immediately behind the first mortgage in priority. Clients may refer to this as a home equity loan, home equity line of credit (HELOC), etc.
Pre-Qualification: An initial approval based off credit report, reported income and debt.
Conditions: These are items, typically stated on the loan approval, that are required to be documented prior to the loan receiving final approval (appraisal, title, etc.)
TYPES OF LOANS
Fixed Rate Mortgage: A loan that has a fixed rate that does not change for the entire mortgage term.
Adjustable Rate Mortgage (ARM): A loan that has an interest rate that adjusts periodically.
Option ARM Mortgage: A loan that allows you to choose from one of four payment choices each month. This gives you the flexibility to change your mortgage payment as your needs change. Payment Options include: Minimum Payment, Interest-Only Payment, 30-Year Fixed Payment, and 15-Year Fixed Payment.
Fixed Period Adjustable Mortgages: This is a hybrid of a fixed and adjustable loan. Options for these include 2/1, 3/1, 5/1, 7/1 and 10/1. This means the loan stays at a fixed rate for a number of years, such as 2, 3, 5, 7, or 10, and then converts to an adjustable rate.
These loans are also available in new 40, 45, and 50 year terms. The benefit of longer terms is lower payments.
Interest Only: Qualified borrowers pay “Interest Only” for a set period of time.
Full Documentation (full doc): Loan qualifying where you provide full supporting documentation, such as W-2’s, pay stubs, etc.
Low Documentation: If your credit score is high enough, low documentation loans are available such as “Stated Income,” where you can “state” your income and not have to provide as much supporting documentation.
