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Mortgage Basics Overview

SM. Mortgage Basics Overview. Brought to you by and. Mortgage Terminology. Mortgage - a legal document indicating that a specific amount of money will be loaned at a specific interest rate

akeem-hardin
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Mortgage Basics Overview

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  1. SM Mortgage Basics Overview Brought to you by and

  2. Mortgage Terminology • Mortgage- a legal document indicating that a specific amount of money will be loaned at a specific interest rate • Equity-The difference between the present value of the property and the mortgage amount on that property

  3. Mortgage Terminology • LTV (Loan to Value)- The ratio of the amount of the loan to the lower of the appraised value or sales price of real property (expressed as a percentage)  • CLTV(Combined Loan to Value)- The ratio of the amount of the loan and any subordinate financing (like home equity loans) to the appraised value or sale price of real property

  4. Calculating LTV and CLTV • The appraised price of the home is $200,000 and the mortgage amount is $160,000 • LTV= $160,000 divided by $200,000 = .80 or 80% • Now assume there is a Home Equity loan with a $10,000 balance as well • CLTV= ($160,000+10,000) divided by $200,000 = .85 or 85%

  5. More Mortgage Terminology • Conforming- A mortgage loan which meets all requirements (size, type, and age) to be eligible for purchase or securitization by outside agencies (ex. Fannie Mae) • Non-Conforming- A mortgage loan in which the loan amount, the loan-to-value ratio, the term, or some other aspect of the loan exceeds permissible limits as specified in agency regulations

  6. Conforming Loan Size Limits Mortgage Loan Types and Sizes Check Daily Rate Sheet for updates, excludes Alaska and Hawaii

  7. Non-Conforming Loan Size Limits Mortgage Loan Types and Sizes Check Daily Rate Sheet for updates

  8. More Mortgage Terminology • Conventional- Mortgage financing which is not insured or guaranteed by a government agency • Non-Conventional- Mortgage financing which is insured or guaranteed by a government agency

  9. More Mortgage Terminology • Lock period- The number of days during which a lender guarantees a borrower a specific interest rate and terms on a mortgage • Float- A loan application in which the lender has not committed to lend at a particular interest rate • Rate Cap- On an adjustable rate mortgage, the limit on interest rate increases and/or decreases during each interest rate adjustment (adjustment period cap) or over the term (life cap) of the mortgage

  10. More Mortgage Terminology • Point- An amount equal to one percent of the principal amount of a mortgage. Loan discount points are a one-time charge assessed at closing by the lender in return for a lower note rate

  11. Mortgage Ratios • Housing or front end debt ratio • Monthly housing costs, including mortgage payments, property taxes, insurance and monthly maintenance fees (if applicable) as a percentage of monthly gross income • Total or back end ratio • Monthly housing costs plus monthly payments on consumer credit and other long term debt as a percentage of monthly gross income

  12. More Mortgage Terminology • Mortgage Insurance- Insurance which protects mortgage lenders against loss in the event of default by the borrower. This allows lenders to make loans with lower down payments. The federal government offers MI through HUD/FHA; private entities offer MI for conventional loans • Premium Pricing- a higher interest rate charged to the borrower in exchange for receiving a dollar amount credit that reduces their closing costs

  13. More Mortgage Terminology • Escrow account- 1) the deposit by a borrower with the lender to pay taxes and insurance premiums when they become due or 2) the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate (also called impounds)

  14. Refinancing • Rate and term refinance- The refinance of an existing mortgage balance solely to lower the interest rate or change the terms of the loan • Cash Out refinance- The refinance of an existing mortgage at a higher dollar amount resulting in cash back to the borrower. Also refers to the refinance of 1st and 2nd mortgages when the 2nd mortgage was not originated and drawn on simultaneous with the purchase of the property

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