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Speaking The Language of Mortgage Loans

Whether applying for your first loan, second or refinancing, the mortgage application process can be overwhelming. Understanding the language of mortgages is a first step to understanding it.

The first thing to understand about the mortgage application process is the subject of origination. This is the filling out of the application, rounding up and supplying of documentation, verification of employment and checking of credit history.

If you are cash rich at the closing, you might want to investigate paying a discount point. It is the equivalent of one percent of the loan amount. By paying it, you can pay down the interest rate on the loan and save money over time.

A 203(k) loan is one of those unique government programs found in the mortgage world. It is a FHA loan that combines the cost of purchasing the home with rehabilitating it. All and all, it is usually a very good deal.

The mortgage application is pretty much what it sounds like. It should be viewed, however, as only the first step in the process. You can expect the lender to ask for additional information and documentation.

The adjustable rate mortgage, better known as an ARM, is a common mortgage loan that has an interest rate that adjusts according to some index such as LIBOR. The interest rate can go up or down, but usually has a cap on how much it can move in a certain period of time.

The mortgage industry is full of terms that sound rather drastic such as underwriting. This simply refers to the evaluation process by an underwriter at the lender. These days, it is often a piece of software. It takes all your information, crunches the number and approves or rejects the loan.

Equity is obviously an important aspect of your home. You want as much as possible. One way to increase it is sweat equity. This is improvement of the property through your own efforts. Think Home Depot and weekends!

Timing is a big issue in the world of mortgages. Specifically, rates change on a daily basis. To avoid this problem, you want to “lock in” your interest rate when a lender approves you. The cost is usually a few hundred dollars.

In evaluating the merits of a borrower, lenders look to many different aspects of your financial profile. The “debt-to-income ratio” is one. It represents your total house expenses compared to your income.

Obviously, this represents only an introduction to the terminology of the mortgage industry. That being said, you can cut down on the confusion associated with it if you simply take the time to learn the language.

Article Source: http://articlebob.com

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