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Learn the Lingo!

Posted on November 9, 2012 by Ray Williams.

For most of us mortgage lingo is like a foreign language.  Seriously!  The abbreviations, the terms, can sometimes feel like a language barrier between you and your lender.  Whether you are refinancing or purchasing I’ve compiled a list with the most common terms and “lingo” to help you.

1.    FICO Score- FICO is an abbreviation for Fair Isaac Corporation and refers to a person’s credit score based on credit history. Lenders and credit card companies use the number to decide if the person is likely to pay his or her bills. A credit score is evaluated using information from the three major credit bureaus and is usually between 300 and 850

2.    FSBO (For Sale By Owner)- a home that is offered for Sale by the owner without the benefit of a real estate professional

3.    Escrow-    Funds held in an account to be used by the lender to pay for home insurance and taxes.

4.    Equity- An owner’s financial interest in a property; calculated by subtracting the amount still owed on the mortgage from the fair market value of the property (determined by an appraisal)

5.    GFE (Good Faith Estimate)- An estimate of all closing costs including prepaid and escrow items as well as lender charges; must be given to the borrower within three (3) business days after submission of a loan application.

6.    TIL (Truth In Lending)- full written disclosure including all fees, terms and conditions associated with the loan including the APR (which usually confuses everyone)

7.    APR (Annual Percentage Rate)- This measures the cost of credit annually.  This includes interest as well as other costs/fees in the loan.  This is why it can be confusing because it is higher than the rate you will lock with, because this is the ANNUAL rate including all interest and fees/costs.  It is NOT your interest rate on the loan. Clear as mud?  (if ever you have a question always ask your lender, they should be more than willing to explain, your are not alone if this is confusing)

8.    Closing Costs- These are the costs for the loan that are not included in the purchase price, or if refinancing it is the costs involved to originate the loan.  Such as origination fee, discount points, title insurance, appraisal fees, surveys, pre payment of real estate taxes & insurance, legal fees (if applicable), realtor fees and real estate transfer taxes.  Not all of these may be applicable to your loan but these are all the fees that could be included in closing costs.

9.    Origination Fee- the charge for originating a loan; is usually calculated in the form of points and paid at closing. One point equals one percent of the loan amount.

10.     Discount Points- Normally paid at closing and generally calculated to be equivalent to 1% of the total loan amount, discount points are paid to reduce the interest rate on a loan.

Now these are the most common but there are many other terms that you may want to look into.  Here is a glossary of mortgage terms  that is located on the HUD website.  Which I highly recommend keeping as a reference while you are going through the loan process.

If you have any questions, as always please don’t hesitate to call and/or email me.

Cheers~

Ray Williams

Branch Manager

Summit Mortgage Corporation

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