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Loan Process

While no two loans are ever the same, here is an idea of what you can expect during your loan process:

terms

Adjustable Rate Mortgage (ARM)

A home loan with an interest rate that can change, depending on federal interest rates. The interest rate usually has a cap to make sure it doesn’t go up too far, no matter what happens to the economy.

Annual Percentage Rate (APR)

An annual calculation that includes the interest rate quoted by your mortgage company plus additional home loan costs such as origination fees and points.

Closing Costs

All costs of the home-buying process (ie. lawyers fees, taxes, title insurance, escrow payments) that aren’t covered in the purchase price of the house, and are paid upon closing.  These are common fees during the homebuying process; your lender can provide you with a loan estimate of what these will be.

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.

Equity

The amount of a property's value that is owned by the property owner, due to home improvements, market growth, and paying down the principal.

Escrow

A third-party account that holds all the money and documents that make up a property transfer until the sale is complete.  This protects both parties during a sale.

Fixed-Rate Mortgage

A home loan with a solid, unchanging interest rate. If you get one of these, you may want to refinance later if interest rates go down, but you won’t have to worry about them going up.

Jumbo Loans

Loans that exceed the dollar amount set by Freddie Mac and Fannie Mae.  Because jumbo loans cannot be funded by these two agencies they usually carry a higher interest rate.

Liabilities

All the money you owe, such as auto loans, student loans, and credit card debt.  Liabilities include long-term and short-term debt.

Loan-to-Value Ratio (LVR)

This term refers to the amount of money you are financing in relationship to your new home's value.  For example, if you put $10,000 down on a property worth $100,000 (financing the remaining $90,000), your LVR is 90%.

Lock

A mortgage rate quoted from your lender that will be guaranteed for a certain number of days from your application date

Prepayment Penalty

A fee incurred for paying off your mortgage early; not all home loans have these

Private Mortgage Insurance

A mortgage insurance you may be required to pay that protects the lender if you were to default on your mortgage payments. The lower your credit and down payment are, the more likely you will be to pay for this type of insurance.

Underwriting

The decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors, and the matching of this risk to an appropriate rate and term or loan amount.

Verification of Employment

A document signed by the borrower's employer, used to verify position and salary