Mortgage Jargon Explained

As your clients navigate the purchase of their first home, they likely will come across many terms, acronyms, and jargon that they won't understand. We want you equipped to help them, so we've compiled some common questions and provided information for you to help answer them for your clients.

Top 10 Home Loan Questions:

What is loan-to-value?

LTV represents the relationship between the outstanding mortgage balance and the appraised value or sale price of the home. For example, the LTV of a home that sales for $275,000 with an outstanding mortgage balance of $165,000 (165,000 divided by 275,000) is 60%.

What are discount points?

A point is 1% of the loan amount. For example, 1 point on a $200,000 loan is $2,000. If a client pays discount points, they can get a lower interest rate, which is ideal if they plan to live in the home for a long time. Points paid at closing may also possibly be a tax deduction.

How do I select the right mortgage for me?

In order to determine the right loan for your client's needs, consider the following:

• What amount of liquid funds do they have available for a down payment and costs at closing?
• How long do they intend to own the home?
• Are there any derogatory credit items in their credit history?
• What are their short-term and long-term financial goals?
• Ideally, how many years would pass before the home loan is paid off?
• Are there any upcoming financial obligations or events to consider (e.g., college tuition, etc.)
• Do they have a stable income stream (base salary) or a variable income stream (self-employed or commission income)?
• How much future interest rate risk and volatility are they willing to assume for a lower rate in the short term?

How much should I have for a down payment?

The required down payment can depend upon the home loan type (Conventional, Government, Jumbo, etc.). But there are mortgage loan programs available that allow up to 100% financing with a minimum down payment of $500 on 1-unit properties. However, PMI is required if you don’t put down more than 20%. 

What is private mortgage insurance (PMI)?

PMI is insurance that partially protects a lender when a borrower seeks to finance more than 80% of the home value. It’s included in the escrow portion of the mortgage payment.

What is the Debt-to-Income ratio?

The DTI ratio is total monthly debt (house payments, credit cards and other loans) divided by total gross monthly income. This ratio helps lenders determine an applicant's ability to repay the mortgage.

What are closing costs?

Closing costs are divided into three main categories:

1. Lender fees – Fees can include origination, points, underwriting review, processing, credit report, flood certification, and appraisal.
2. Third-party fees – These fees are charges by entities other than the lender. They can include fees for closing, title search, title insurance, tax certificates, and recording.
3. Prepaid items – These are items collected at the time of closing and are items that accompany the loan (e.g., interest, taxes, and hazard insurance).

How will I know how much money I need to bring to closing?

Their closing disclosure will provide the final figure. Upon request, their title company will provide the final settlement statement for review. This will allow them to ask questions prior to closing and also give the opportunity to obtain a cashier’s check (made payable to the title company) or prepare for their wire.

What items do I need to bring to my closing?

A photo ID (driver’s license) and any funds needed for closing. They can bring a cashier’s check or the funds can be wired directly to the title company.

Our team is always looking for energetic and high-performing mortgage professionals! Visit our mortgage sales careers page for more information.