Mortgage terms and acronyms
The mortgage world has a language all its own. Here are some mortgage terms and acronyms that will help you navigate the mortgage process.
Amortization Schedule: This is a schedule that breaks down the interest and principal portions of each payment. Keep in mind that this schedule won’t be accurate if you make additional interest payments throughout the life of the loan (which you should totally do!).
APR (Annual Percentage Rate): A rate is a fine beginning when you’re looking at mortgages, but APR is where the pros go. The APR reflects the true cost of your loan – it’s a rate that includes discount points, fees, and most everything else charged in the course of creating the loan.
Bridge Loan: This is a type of loan that taps into the equity of your current home for use as a down payment for your next home. Once the old home sells, the proceeds will go to cover the bridge loan (and mortgage, if you have one).
Cash to Close: This is the amount of cash you need to bring to the table at close. It will include the down payment and all closing costs. You don’t need to bring actual cash – a cashiers check will do nicely!
Closing Disclosures: These are good! This form will tell you the rate and all the costs paid by you, the seller, and any other parties involved. Look these over carefully!
Conditions: Conditions are set by Underwriters when they need additional information after the submission of your application. Underwriters need to cross all their t’s and dot all their i’s, and conditions are how they do it. If you receive a list of conditions from your underwriter, get to work on completing them! Failing to fulfill conditions will prevent your loan from closing, and that makes exactly zero people happy.
CTC (Clear to close): These are the words you want to hear! When you’re clear to close, the underwriters have finished their work and the loan is ready to be signed on the dotted line. JPAL will reach out to you at this point to set up a closing time and date. It’s almost time to pop open the sparkling grape juice or other celebratory beverage!
Discount Points: Take your loan rate lower with discount points! Unlike the discounts you’ll find at the supermarket, you’re going to pay for these. A discount point is equal to 1% of your loan amount, and each discount point purchases lowers your interest rate. Easy! Just remember that these points can only be purchased with cash and you’ll need to settle the bill at closing. You’ll spend more now, but you’ll save money over the life of the loan!
Earnest Money Deposit: This is a sack of cash (in the form of a check) that shows you’re ready to buy the house when your offer is accepted. It ranges anywhere from 1-3% of the total purchase price. Complete the loan and this money is added to your downpayment. Back out of the loan and, most of the time, the seller keeps the loot.
Escrows: This account is typically created by a lender to hold your property tax and home owner’s insurance for your loan. The funds required for the account are then included in your monthly payment. The best part? The escrow account holder (usually the lender) will pay your taxes and insurance for you – no need to keep track of it yourself! This is required on loans with lower down payments, and they’re optional for loans with larger down payments (or with other extenuating circumstances).
Fannie Mae and Freddie Mac: These are government sponsored businesses that buy and secure mortgages in the secondary market which they then sell as mortgage backed securities. Loans that are able to be sold to them are called conforming loans. Just know that they exist and there’s a good chance they will be securitizing your loan. This won’t change your Loan Servicer, though. It’s all behind the curtain kind of stuff.
Loan Estimate: These are the numbers you’ll see at the beginning of the loan and include rate, payment, and other costs associated with the loan. The key word here is “estimate.” All loans are different, and this can and will be updated if a loan starts coloring outside the lines.
Loan Servicer: These are the folks who take your payments and provide customer service for your loan. It’s usually a bank or company that specializes in mortgage loans customer service.
LTV (Loan-to-Value): Your Loan-to-Value is the amount of a loan compared to the value of the item being financed – in this case, your awesome new house. For instance, if you’re buying a house that is $100,000 and you’re putting down $20,000, your LTV would be 80%. Put down $5,000 on that same house and your LTV is 95%.
PMI (Private Mortgage Insurance): PMI protects the lender in case a purchaser defaults on their mortgage. If you are putting less than 20% down on a home, PMI will typically be required. If you’re putting down 20% or more, you can skip it! Keep in mind that this is a monthly fee added to your payment, and it doesn’t count toward principal, interest, or escrows.
Rate Lock: This is a rate guarantee that typically runs from 30 to 45 days and it protects you against fluctuations in your rate. This will happen after you apply for your loan and decide to proceed.
Title Company: The invisible workhorses clomping about behind the scenes to ensure that your new home has no hidden liens or other unsavory discrepancies that will rain on your home ownership parade.
Underwriters: These are the people that approve or deny your loan. Much like He-Man and She-Ra, they have the power!
Underwriting: The process an underwriter uses to approve or deny your loan. It’s a LOT of work behind the curtain. But that’s why you trust JPAL Mortgage to make it a smooth process in front of the curtain!
JPAL Mortgage is a licensed broker in the state of Michigan. NMLS# 2189752 | Equal Housing Opportunity