Getting a home mortgage loan can be challenging and even frustrating when commonly used mortgage terms are used without explanation. Here are some of them:
“Loan to Value”
The ration of the loan desired compared to the appraised value of the home. The higher the “LTV”, especially over 80%, will cost more in fees.
“Debt to Income”
The amount of monthly installment debt and mortgages divided by the gross monthly income (DTI). Depending on the borrower’s credit score, the maximum range is 43 – 48%. Some programs allow higher DTI, but also cost more or they are at higher rates.
“Title and Escrow”
A “Free and Clear” title to any property is required by all lenders making loans on real property to make sure there are no liens or legal proceedings against the property. Title fees are regulated by the state and can cost between $400 – $1,200 depending on the loan amount. Escrow means the finalization and recording of contracts and loan documents done usually by a Licensed Practicing Officer (LPO) at a title company or attorney. Escrow costs are usually a little less than title costs.
“Cash-our Refinance” and “Streamline Refinance”
Cash-out applies to any refinance where debt other than a first mortgage is included which also applies to 2nd mortgages or Lines of Credit. Extra fees also apply to these loans. “Streamline Refinances” mean only the first mortgage for a VA or FHA loan is being refinanced and no appraisal is required.
This means on a purchase loan, the Seller has agreed to pay some or all of the Borrower’s loan closing costs (a per cent or fixed dollar amount) as part of the purchase price.
The extra fee required to cover any costs for a specific loan based on credit scores, LTV, or DTI or type of loan. This is expressed as a percentage of the loan amount and really is a premium, not a discount. On a $200,000 loan, a cost of .50 “discount point” would be $1,000.