The Rosetta Stone of Home Loan Terms

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The Rosetta Stone of Home Loan Terms - By: Hal James, Posted on: 2007-04-26

The first thing you will notice when looking into a home loan is the odd and unfamiliar terminology being used. Frankly, it can be intimidating and overwhelming. Here are some of the more common terms use and their meaning.

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.

Talk to a mortgage professional and they will soon utter the phrase “pity”. Nope, it is not an evaluation of your loan. It is really “PITI”. It means principal, interest, taxes and insurance, to wit, a global figure for the obligation you are undertaking.

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.

Refinancing is one of those terms that sound fairly basic. It is. One refinances to pull cash out of equity or just to get a better interest rate or monthly payment. Be aware, however, that your original loan may have a pre-payment penalty.

Perhaps the simplest term to understand is equity. Equity is simply the amount you own free and clear of any debt obligations on your home. Equity grows as you pay down the mortgage balance. It also grows as the home appreciates. Over time, it can become a large amount.

The infamous balloon mortgage is one of those loans that can lead to catastrophe. The loan offers low initial payments and rates, but there is a big catch. After a set period of time, such as seven years, the entire amount comes due.

Lenders evaluate potential borrowers in many different ways. The loan-to-value ratio is one of them. It is the requested loan amount divided by the appraised value of the property.

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.

The concept of truth-in-lending is designed to protect you, the consumer. Finance is a complex subject, so this law requires the lender to provide you with written disclosure of all fees, conditions and terms associated with your loan.

Visiting a country where you don’t understand a word being said can make you feel bashful and intimidated. The same goes with dealing with lenders. This can lead to unfavorable loans. Take the time to learn the lingo, and you can avoid such problems.

Article Source: http://higradesearch.com

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