With the summer buying season in full swing, you may have come across certain mortgage terms that are less than familiar to you. While a mortgage loan is a serious decision and the largest purchase most people will make, it doesn’t have to be a mystery. Check out some common mortgage terms and what they mean for you.
1) Conventional Mortgage
A mortgage loan with terms and conditions that meet funding criteria of Fannie Mae and Freddie Mac. Rates can be fixed or adjustable. Also known as a conforming loan.
2) Appraisal
A professional evaluation of the value of a home or other piece of property, It is often required by the lender.
3) Cap
A limit on how much a mortgage interest rate may increase or decrease for an adjustable rate mortgage.
4) Loan-to-Value Ratio (LTV)
The amount of the loan divided by the purchase price of the house. If a refinance, the loan is divided by the appraised value.
5) Debt-to-Income Ratio (DTI)
A ratio used by lenders to determine whether a person is qualified for a mortgage. DTI is the total amount of debt, including credits cards and other loans, divided by the total gross monthly income.
6) Escrow
Money and documents deposited in a trust account to be held by one party for another. Often used by brokers to hold deposit money prior to closing. Also used by lenders to hold money for taxes and insurance on a home.
7) Truth in Lending Act
A federal law that requires lenders to reveal all the terms of the mortgage.
8) FHA Loan
A loan guaranteed by the Federal Housing Administration. FHA issues specific guidelines for mortgages.