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List of Common Mortgage Terms
Getting a mortgage or refinancing a mortgage could be one of the most intimidating processes that anyone has to go through.
On top of that, you as a borrower have to deal with some special mortgage terms from the loan officers and the realtors which could make things a little more confusing.
In this post, we will learn the most common mortgage terms used in the process of refinancing or buying a new home so that the next time when you talk to a loan officer or a realtor you will have a better idea of where the conversation is going.
For loan officers, these terms are common knowledge as they are doing loans day in and day out.
However, as a borrower, you may not be familiar with a few of these terms especially if you are a first-time homebuyer.
Let’s see the most common mortgage loan terms.
1 - Debt to income ratio (DTI)
You may come across this mortgage term when your loan officer says that you might have an issue with your DTI (Debt to income).
Here is what this mortgage terminology means-Your DTI means your budget to get a loan and if the lender can fit you into a budget that Fannie Mae and Freddie Mac require to approve your loan.
It is a ratio of how many debts you have on your credit versus how much income you make a month.
The calculation is simple, get your debts from your credit report with minimum monthly payments including your proposed mortgage payments divided by the gross monthly income multiplied by a hundred.
In most cases, the DTI should be less than 50%. If you have any confusion calculating your debt to income you can always speak to your trusted loan officer to understand this mortgage glossary better.
2 - Loan to Value (LTV)
This is also one of the most common mortgage terms used in the mortgage industry. This mortgage terminology shows how much loan you have against your property value.
For example, if you have a loan balance of a hundred and fifty thousand and your property value is three hundred thousand, So the calculation goes 150/300*100 which equals 50%.
The loan to value may differ depending on the program you select and the amount of down payment you are willing to make.
In the case of FHA, the maximum LTV is 96.5% whereas for conventional it can go up to 97%. According to general standards, 80% LTV is the most common.
3 - Pricing
This is one of the most confusing home loan terms. You may come across your loan officer saying that the pricing on a specific day is bad.
What is the pricing? Well, pricing is nothing but mortgage terminology that the loan officers internally refer to as your interest rate.
If the rates on a specific day are high, the loan officer may say that ‘the pricing isn’t the best today’. Whereas, if the rates are low, your loan officer may refer to that as ‘good pricing’.
4 - Inspection and Appraisals
Inspections and appraisals are also some of the most commonly used mortgage loan terms. In any real estate transaction, the inspection is not mandatory.
You as a buyer hire a professional inspector to ensure that everything from HVAC to the roof is in good condition before you sign a contract. An appraisal is a whole different story.
An appraisal is mandatory in almost all of the cases because the lender as well as the borrower needs to know what the value of the house is.
A third-party appraisal management company sends a certified appraiser to get an appraisal report on the subject property.
In some refinance cases you might receive a property inspection waiver where there is no appraisal required.
However, it is an automated system that decides that and the lender does not have any control over it.
5 - Underwriting
There are two entities linked to this home loan term which are Fannie Mae and Freddie Mac.
They probably do ninety percent of the mortgages in the country. Those are the two entities that also everybody uses to get your loan approved.
The lender uses a computer system to plugin all your data to their website. Your loan officer may refer them as DU or LP.
These are nothing but automated initial loan approval systems. DU is designed for Fannie Mae and LP is designed for Freddie Mac.
You need to get initial approval from these automated systems to proceed further.
Once you get approval, then you need to validate all the data that you have submitted to the automated system.
You now have to accumulate all the documents supporting your disclosed figures regarding, income, credit scores, debts, appraisals, etc. These documents are then forwarded to a person called ‘underwriter.’
The underwriter will go through each document and see if they meet the Fannie Mae or Freddie Mac guidelines and get you the final approval for your loan.
If there is any guideline that is not met, the underwriter will give a conditional approval which means the loan can only get final approval after certain documents are provided.
If they are provided then you will receive a final approval otherwise your loan may get declined. This entire process is known as underwriting.
6 - Title
Most of the states and mortgage lenders need to get a title report. This protects the lender and protects you as well.
They go to the courthouse and they pull all of the data on the subject property. The data may include any liens or claims on the property.
The title insurance insures that from the day you took out that loan you have no issues or concerns going forward about the past.
7 - Clear To Close (CTC)
Clear to close is one of the home loan terms which you should be happy to hear.
When you hear the mortgage term CTC that means your loan is finally approved, completed the underwriting process, and is clear to close.
Your loan officer is going to schedule a closing date and time where you will be signing papers and get the process of refinancing or buying concluded.
Conclusion
We hope that after knowing these mortgage terms you may now get to know what your loan officer or realtor is referring to when in a conversation.
These home loan terms may sound confusing when hearing them for the first time, however, if you know what it means it makes the mortgage process more easy and interesting for you.
