Loan Application: an initial statement of a borrower’s personal and financial information, which is used to review a request for credit.
Loan Estimate: provides borrowers with a good faith estimate of credit costs and loan terms and is given to the borrower within three (3) business days after the lender receives a loan application.
Closing Disclosure: a document that provides the actual terms and costs of the loan. The borrower receives it at least three (3) business days before the closing.
Point: a one-time charge imposed by the lender to lower the interest rate at which the lender would otherwise offer the loan. Each point is equal to 1 percent (1%) of the mortgage amount.
Origination fee: charged by a lender to a borrower to cover administration and loan document preparation. The fee is usually based on a percentage of the loan amount.
Appraisal: a formal written estimate of the current market value of a home and land.
Credit report: a record of your current and historical borrowing and repaying, including information about late payments and public records such as bankruptcy.
Survey: a measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions and the location and dimension of any improvements.
Title insurance: an insurance policy that insures against defects in the title. The cost of the policy is usually a function of the value of the property and is often paid by the purchaser and/or seller. There are two types of policies: a Lender’s Policy and an Owner’s Policy.
Lender’s Policy: is required by the investor and protects the lender’s interest in the event a claim arises.
Owner’s Policy: protects the buyer’s interest in the property (home and land). An Owner’s Policy is optional but recommended for your protection.
Recording fees: are charged by a municipality for recordation of the Deed, the Mortgage/Deed of Trust, and at times, additional documents requiring public notice.
Homeowner’s Hazard Insurance (HHI): a policy insuring a private dwelling and its contents against multiple perils.
Prepaid interest: the amount of interest paid at closing to cover the period from the closing date until one month before the due date of the first mortgage payment.
Debt-to-income (DTI) ratio: is expressed as a percentage and is equal to a borrower’s total monthly payment obligations on current debts divided by his or her gross monthly income.
Credit score: is a numerical value that serves as a measure of credit risk derived from a statistical program based on information contained within a credit report that lenders use to determine a borrower’s creditworthiness.
Adjustable-rate mortgage (ARM): a mortgage in which the interest rate is adjusted up or down periodically based on a pre-selected index; also known as a variable rate mortgage. ARM products have interest rates that may increase after loan consummation.
Mortgage insurance (MI): allows a mortgage lender to recover part of its financial losses if a borrower defaults on a loan.
Interest rate: is a percentage of a sum of money that is charged for its use.
Amortization: the repayment of mortgage debt with periodic payments of both principal and interest, calculated to pay off the loan obligation at the end of a fixed period of time.
Annual Percentage Rate (APR): the cost of credit on a yearly basis, expressed as a percentage. It is required to be disclosed by the lender on the loan estimate. Because it includes certain costs paid to obtain a loan, it is usually higher than the interest rate stated in the mortgage note. The APR aids in comparing the true cost of loans offered by lenders.
Loan Estimate: a disclosure that provides a summary of the loan terms, estimated loan costs, other estimated closing costs and additional application disclosures.
Mortgage loan processor: an individual who performs clerical and support duties during the mortgage loan process, including the receipt, collection and distribution of information for the processing or underwriting of a residential mortgage loan; and communicates with a consumer to obtain the information necessary for the processing or underwriting of a loan.
Underwriting process: during this process, the decision to make a loan to a potential homebuyer is based on credit, employment, assets and other factors.
Closing: the closing of a home purchase is when the deed and financial documents are delivered, necessary documents are signed, and the funds necessary to consummate a loan transaction are disbursed. Also called “settlement or closing.”
Lock (Lock in): a commitment obtained from a lender assuring a particular interest rate or feature for a definite time period. During the term of the lock commitment, the borrower is protected from interest rate increases.
Closing Disclosure: provides a summary of the actual loan terms, the loan costs, other settlement costs and additional closing disclosures.