Within a few minutes of speaking with a mortgage lender, you will realize they speak their own special language. Here is a brief rundown of some of the more common terms you are likely to hear your lender mention. Don’t worry if you don’t speak “loan.” The agents are Addicted Realty are here to help you translate this new language.
Acceleration Clause
This clause in your mortgage outlines situations when the lender can “accelerate” or speed up the repayment of the loan. Basically – if this clause is triggered, the loan is all due now instead of in monthly payments.
Credit Score
Mortgage lenders review your credit profile available with the three (3) credit bureaus. The lender uses the middle of the three scores determining if you qualify for a loan and at what interest rate and other terms.
Credit Bureaus
The three (3) major credit bureaus or reporting agencies are TransUnion, Equifax, and Experian.
Debt-to-Income – DTI
The percentage of monthly debt compared to monthly income. Take a look at the following example:
Monthly Income: $5,000
Monthly Debt: $1,000
DTI: 20%
There are two (2) different DTI ratios that lenders review: the front end and the back end DTI. -DTI (front end) This is your monthly housing expense compared to your monthly income. -DTI (back end) This is your total monthly debt (housing, credit card payments, revolving loan payments, car payments, student loan payments, and installment debt payments) compared to your monthly income.
Deed of Trust
This is the actual mortgage document. When this document is recorded against your new house, you are making a promise to repay the loan. If you don’t make the loan payments as agreed, the mortgage company has the right to take back the house through the foreclosure process.
Due on Sale Clause
This clause in your mortgage indicates that you have to repay the loan if you sell or refinance the property.
FICO Score
The FICO score is calculated by the Fair Isaac Corporation using a secret formula. The exact impact of any one item on your credit report is only known to Fair Isaac.
Loan Investor
This is who currently “owns” your loan. They receive the principal and interest payments you make each month. The investor pays the loan servicer for managing the day-to-day operation of your mortgage. You will typically never have any direct contact with the “investor.”
Loan Originator
This is the company (bank, lender, mortgage broker) that takes your mortgage application, processes the loan, and funds the loan. They “originate” the loan process. It’s possible that you may not ever make a payment to this company unless it’s a major bank, as they typically will “sell” your loan to an investor on the secondary market.
Loan Servicer
This is the company to which you make your monthly mortgage payment. This entity is responsible for the day-to-day management of your loan. They are your point of contact for all things related to your loan, but they do not typically “own” your loan. They work on behalf of an investor.
Loan-to-Value – LTV
The percentage of outstanding loan amount to the value of the house. Take at look at the following example:
Home Value: $100,000
Loan Amount: $80,000
LTV: 80%
PITI – Principal, Interest, Taxes and Insurance
This refers to the 4 components of a typical monthly mortgage payment. The monthly mortgage payment normally includes a portion that goes towards the loan Principal, the monthly interest due on the unpaid principal balance, 1/12 of the annual homeowner’s insurance premium, and 1/12 of the annual property taxes.
Term
The number of years or number of monthly payments you have to repay a loan. Typically mortgage loans have either 15 year or 30 year term.
