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Amortization
Gradual payment of a debt through regular installments that cover both interest and principal.
Annual Percentage Rate (APR)
A measure of the total cost of credit (interest as well as other recurrring charges) expressed
as a yearly percentage rate. All lenders apply the same rules in calculating the annual percentage
rate, giving consumers a good basis for comparing the cost of loans.
Appraised Value
An option of the value of a property at a given time, based on facts regarding the location,
improvements, etc., of the property and surroundings.
Assets to Close
Assets to Close is the amount of cash or equivalent that can be used for a down payment and
closing cost.
Balloon Term
Balloon loans have a payment based on a longer amortization, but are all due and payable in full
after a specified period of time indicated in the Promissary Note. When the note matures, the principal
balance outstanding is due in full. We can help with five and seven year balloon loans with payments
based on a 30-year amortization. Please refer to conventional loan product descriptions for details
about Balloonloan programs.
Bankruptcy
There are several types of Bankruptcies (chapter 7,9,11,13, etc).
Bi-Weekly Mortgage Payments
Every 2 weeks, one half of your present monthly payment is electronically debited from your bank
to a Trust Account. Your mortgage payment is then paid on your due date for you*. Over the course
of a year, by paying one half of your present monthly payment every 2 weeks, approximately every 6
months additional dollars accumulate in the Trust Account for you. These dollars are applied to your
principal, accelerating your equity build-up. By using this method, you make the equivalent of 13
payments over the course of a year.
*Interest is not credited to the client during this transaction period.
Cash Out Refi
If applicable please indicate if you intend to receive cash back from the refinance of your property.
Closing Costs
Closing cost vary by region and lender. The closing costs are based on an 80% loan-to-value ratio
and are 2.5% of the Maximum Loan Amount.
Credit Rating
Always remember to check your to check your Credit Report for errors (once a year!) - it is estimated that 50% of all credit reports contain errors significant enough for an individual to be denied a loan!
A+ to A- Considered the best credit rating. FICO scores are generally 620 and up with no
lates on mortgage and one 30 days late on revolving or installing credit. No bankruptcy
within past 2-10 years.
B+ to B- General good credit with FICO scores from 581 - 619. Two or three 30 days late on
mortgage and two to four 30 days late on revolving or installment credit.
Cannot have any 60 day lates. Must be 2-4 years since bankruptcy discharge.
C+ to C-Fair credit with FICO scores from 551-580. Three to four 30 days late on mortgage
are allowed. Installment or revolving credit can have four to six 30 days late or two to four
60 days late. Must have 1-2 years since bankruptcy discharge.
D+ to D- Overall poor credit history with FICO scores from 550 and lower. Two to six 30
days late on mortgage or one to two 60 days late, with isolated 90 days late. Revolving and
installment lates show poor payment record with pattern of late payments. Possible current
bankruptcy or foreclosure allowed with all unpaid judgments to be paid with loan proceeds.
Must have stable employment.
Current Housing Expenses
This may be rent or the full payment to an exisitng mortgage lender including principal and interest,
the monthly amount of taxes and insurance, any condo/homeowner fees and special assessments.
Debt-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on
long-term debts is divided by his or her gross monthly income.
Down payment
Cash to be paid by the buyer at closing to consummate a real estate transaction.
Estimated Taxes
Most real estate is assessed an annual tax, commonly called real property taxes. Local municipalities
have various methods to calculate real property taxes, making it difficult to accurately determine
the taxes in your area. The Home Purchase Power Calculator estimates the property taxes, but you can
input a different amount based on the tax bill of the subject property. Make sure you divide the annual
tax by 12 for the monthly amount.
Financing Concessions
Many home purchases involve payment of a buyer's closing costs by the seller/builder and/or real
estate agent. If you have a purchase contract for a home that contains provisions for either of these
parties to pay some or all of your loan costs, please enter the total amount of those payments.
Foreclosures
A foreclosure occurs when a borrower is unable to make the monthly payments or otherwise defaults
on the terms of a real estate mortgage and the lender, through a legal proceeding, takes ownership of
the property. A Deed-in-Lieu of Foreclosure occurs when a loan is in default and the lender agrees to
accept title to the property from the borrower by deed instead of going through the foreclosure process.
If you have had a property foreclosed or if you have given a deed-in-lieu of foreclosure in the past
seven years, please select "YES".
Hazard Insurance
A form of insurance in which the insurance company protects the insured from specified losses,
such as fire, windstorm and the like.
Homeowner's or Maintenance Fees
Payments made by property owner(s) of a condominium or a unit in PUD to the homeowners' association
for expenses incurred in upkeep of the common areas.
Housing Expenses
These include the monthly principal and interest payments that are stipulated on the mortgage note.
In addition, the monthly housing expenses include a monthly amount for the property taxes and hazard
insurance (1/12 of the annual taxes and insurance). There may be other expenses, such as condominium
fees, homeowners fees, special assessments, etc., that are included.
Income to Debt Ratios
Primary Housing Expense(PHE)/Income Ratio(I): This ratio is the result of dividing the housing expenses
for the proposed loan by the monthly income of the borrower(s).
Total Obligations(TO)/Income Ratio(I): This ratio is the result of dividing the housing expenses for
the proposed loan plus the borrower(s) other monthly credit obligations by the monthly income of the
borrower(s).
Initial Interest Rate
Typically one to three percentage points lower than that of most fixed-rate mortgages. Lower interest
rates also make ARMs somewhat easier to qualify for. The initial interest rate is tied to certain
economic indicators that dictate in part what the monthly payments will be.
Insurance
Mortgage lenders require hazard insurance on a property used as collateral for the loan. Insurance cost
varies from region to region and by the magnitude of coverage. The Home Purchase Power Calculator
estimates the insurance cost, but you can input a different amount based on you your insurance coverage
preference or from your current Home Owners Policy. Make sure you divide the annual premium by 12 for
the monthly amount.
Interest Rate
The percentage of an amount of money which is paid for its use for a specified time.
Lien Priority
Mortgage liens can have different priorities on residential real estate. A first lien is considered a
higher priority than a second lien.
Liquid Assets
These are funds that can be used for a down payment and closing cost. These assets can be converted to
cash or cash equivalent. Examples are listed below:
- Checking and Savings Account
- Money Market Accounts
- Exchange traded stocks and bonds
- Equity from a pending sale of real estate
- Gifts (not to be paid back)
Loan-to-Value Ratio
The ratio of the mortgage loan amount to the property's appraised value or selling price, whichever is
less.
Loan Type
We can help with conventional, FHA and VA loan programs. If you need further
explanation, proceed to the product descriptions for each loan type.
Market Value
The most likely price a given property will bring if widely exposed on the market, assuming fully
informed buyer and seller.
Minimum Payment
The minimum amount that you must pay (usually monthly) on your account. In some plans, the minimum payment
may be "interest only." In other plans, the minimum payment may include principal and interest.
Monthly Income
One of the most important components of the loan underwriting process is determining the borrower's
monthly income. The income of all borrowers and co-borrowers is included in the calculation. The income
can be derived from several sources, but it must be supported by historical documentation and have a
high likelihood of continuation.
Monthly Debt Obligations
These include monthly credit obligations, such as installment payments, revolving charge cards or other
borrower obligations that will continue longer than 10 months. Usually, 5% of the current balance of a
revolving charge account is used for the monthly payment.
Mortgage
A lien or claim against real property given as security for a loan. It is a two party agreement as
apposed to tri-party agreemenet of a deed of trust.
Mortgage Loan Amount
The mortgage loan amount is based on the monthly principal and interest payment, rate of interest,
and term of the loan. Altering the taxes, insurance, debt, interest and term will recalculate the loan
amount.
Mortgagee
The lender of money or the receiver of the mortgage document.
Mortgage Insurance
Insurance required for a loan-to-value ratio above 80.01%.
Occupancy
Lenders provide financing on owner-occupied primary homes, owner-occupied second or vacation homes
and non-owner occupied homes.
Plan Types
Mortgage loans have a number of possible repayment structures or plans including Fixed Rate,
Graduated Payment and Adjustable Rates. Please refer to the conventional, or FHA or
VA loan product descritpions for details about these variations.
Points
Origination fees charged be the originating lender or broker and/or discount fees charge by lenders
to increase the overall yield. A point is equal to one percent of the principal amount of your mortgage.
Prepaid interest
Prepaid interest is the interest charged to borrowers at loan closing to pay for the cost of borrowing
for a partial month. For example, if a loan closes on the 15th of the month and the first payment is due
45 days later, the lender will charge 15 days of prepaid interest.
Principal Loan Balance
Face amount of a loan evidencing the amount repayable, exclusive of interest, according to the terms
of the note securing the obligation.
Principal and Interest
The principal and interest is the monthly payment needed to repay the mortgage loan over a predetermined
period. After deducting the monthly taxes, insurance, and debt from the Total Monthly Obligation, the
mortgage payment is calculated based on a 30 year fully amortizing loan and the current 30 year mortgages
rates of Lenders with a 1 point origination fee.
Property Rights
Property rights include fee simple and leasehold. Fee simple is the highest form of
ownership and is the most common form of ownership or property right.
Property Tax
A tax levied by the local municipality or county on real and personal property.
Sales Concessions
In some home purchase transactions, seller/builders and/or real estate agents offer special incentives
to prospective buyers (e.g., a new car or boat; a trip; club membership dues; cash credits for upgrades
in carpeting or other buyer preference items). If you have purchase contract for a home that contains
provisions for incentives such as these.
Secondary Finance
If there will be a second mortgage used to assist in financing the acquisition of the subject property,
please enter the amount of that loan. Proceeds from a second can come from a loan from the seller/builder,
a private party or from another lender. (Note: Special qualification reuqirements are applicable when
secondary financing is used.)
Self Employed
If you own 25% or more of the company by which you are employed, you are considered self employed for
loan purposes.
Total Assets
Asset examples are listed below:
- Checking and Savings Account
- Money Market Accounts
- Exchange traded stocks and bonds
- Real Estate
- Autos
- Personnel Items such as furniture, jewelry, etc.
- Cash Value of Life Insurance
- Retirement Fund (IRA, 401k, etc).
Total Liabilities
Liability examples are listed below:
- Revolving Credit Debt (Visa, MasterCard, department store charge cards)
- Installment Debt (bank loans, auto loans, boat loans, etc)
- Real estate loans
- Pledges, personnel notes, etc.
Total Monthly Debt
Monthly debt obligations may include monthly payments on:
- Other real estate loans, but not
- payments on loans being repaid if this is a refinance loan;
- payments on loans being repaid from the sale of an existing home;
- Installment loans;
- Revolving accounts; and
- Child support and separate maintenance (alimony) paid to a former spouse.
Do not include payments on rental real estate mortgages that have been deducted from the income noted in the Total Monthly Income section.
Total Monthly Income
Total monthly income for all persons included can include:
- Wages;
- Workmans's Compensation or permanent disability payments;
- Retirement and Social Security income;
- Net Income from Self Employment (Scheduel C net income);
- Income from Trusts, if continuing for at least three years into the future;
- Income from Partnerships, Professional Corporations or Sub-S Corporations;
- Commissions;
- Bonuses, if they are continuing;
- Interest and dividends;
- Rental income after deducting expenses and debt payments; and
- Other investment income.
Income from child support and/or separate maintenance (alimony) and public assistance programs need only be disclosed if you intend to use it for loan qualification purposes.
Total Monthly Obligations
A key ratio used in the underwriting process is the relationship between the borrower's monthly income
and their total monthly obligations. The ratio is determined by dividing the total monthly obligations
by the total monthly income. There are many factors used in the underwriting process and mortgage
lenders generally follow the underwriting guidelines of FNMA and FHLMC. Typically this ratio should
not exceed 36% to 38%. The Home Purchase Power program determines the total monthly obligations using a
ratio of 38%. The figure is calculated by multiplying the total monthly income by 38%. Total monthly
obligations include:
- The monthly mortgage payment (principal and interest)
- Taxes and insurance
- CONDO/PUD fees, if applicable
- Monthly installment and revolving debt
- Other recurring obligations
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