Whether you’re a first-time home-buyer or a repeat homeowner, some of the terms mortgage lenders use may seem confusing and even intimidating. However, their language really isn’t as complex as it may seem. Use this guide to decipher the “Back to Work” home loan process and become better prepared to meet with a lender.
Mortgage
A mortgage is a document that specifies that the home you are buying is a collateral item for the money you are borrowing. In other words, if you fail to make payments, your home will get taken away. Lenders hold the right to take possession of any property upon a borrower’s failure to repay a loan.
Good Faith Estimate (GFE)
A GFE is a document that shows an estimate of all of the fees and costs of a new mortgage. Lenders must complete this document within three days of a borrower submitting a loan application. When the document is completed, the lender will mail it directly to you. Prospective borrowers use this document to compare fees between different lenders and to better prepare for the overall cost of a new mortgage.
Credit History
A credit history is a financial record that shows how you have handled money and debts. Oftentimes, a person’s credit history will determine if they may qualify for a loan and the rate at which it must be paid back. A credit report shows if you have promptly paid bills, how much available credit you have and your total outstanding debts.
Annual Percentage Rate (APR)
An APR is an interest rate that is expressed numerically in annual terms. An APR always includes additional costs (such as mortgage insurance and broker fees), which is why it always higher than a regular interest rate. An APR can help borrowers easily compare rates charged by other lenders.
The Federal Housing Administration (FHA)
The FHA features loans that are insured by the U.S. Department of Housing and Urban Development. These loans are known for having low down payments. Back to Work program lenders allow borrowers to put down only 3.5 percent with no premiums or fees at closing.
Origination Fee
An origination fee is often required to be paid when a borrower is applying for a new mortgage. This fee is used to cover the cost of the application, appraisal and any follow-up work associated with a new mortgage.
Debt-To-Income Ratio
Home mortgage lenders look at debt-to-income ratio to ensure a borrower will be able to repay a loan. Lenders compare monthly payments, including the potential new mortgage, to the borrower’s monthly income. The result is displayed as a percentage.
Equity
Equity is the difference between the value of the home and the mortgage loan. In general, the equity on a home will increase over time as the value of the home increases and the amount of debt on a loan decreases.
