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  1. My Credentials
  2. What's Coming Up
  3. Easy Reference Guide: Terms to Know
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This chapter is from the book

Easy Reference Guide: Terms to Know

If you come across an unfamiliar mortgage term, use this page for an easy explanation.

APR, Annual Percentage Rate

A figure that includes both the interest rate and some of the up-front fees, calculated as if the up-front fees were amortized over the life of the loan. There is disagreement among lenders as to which fees should be included in the APR calculation; therefore, two lenders with the exact same loan could show different APR figures.

AU, automated underwriting or DU, desktop underwriting

The computerized software program that approves or denies loan applications. Sometimes the program neither approves nor denies, but refers it “with caution” to a human underwriter. AU or DU approval is the first step; a human underwriter reviews the loan file before final approval and before loan documents are drawn up for signing.

Discount Fee

Interest paid up front to buy down the interest rate charged on your loan Note, the money you are borrowing. Also called points (see the next page).

DTI, debt-to-income ratio

All the debts listed on your credit report plus your proposed house payment in relation to your gross (pretax) income. This ratio is used to determine what loan size you qualify for.

escrow

  1. An escrow account is money set aside for paying property taxes and insurance.
  2. An escrow company is a neutral middle party used in some states for closing the loan and handling the disbursement of funds. (Other states use an attorney or title rep. instead.)

FHA loan, Federal Housing Administration

Commonly called the first-time homebuyer’s loan (although, you don’t have to be a first-time homebuyer to use it) because the down payment is only 3.5 percent.

GFE, Good Faith Estimate

A form that lists the terms and all the costs of your loan.

loan officer, loan consultant, mortgage consultant

These and other titles are used interchangeably by employees of banks, brokers, direct lenders, and credit unions.

LTV, loan-to-value ratio

Your loan amount in relation to the price or value of the property. This ratio is used as one of the factors determining your interest rate.

neg. am., negative amortization

A loan where the payment does not cover the entire interest due; therefore, the balance goes up every month. These loans became popular right before the mortgage meltdown. These loans are also called pick-a-payment loans because you get to choose whether or not to make the fully amortized payment each month.

Origination Fee

A fee paid up front to the lender. Also called points. If you opt not to pay this fee, then you will have a higher interest rate on your loan.

par rate

The lowest rate of the day (rates change daily and sometimes midday as well) that you can get without paying extra to buy down the rate.

points

Percentage points. One point is 1 percent of the loan amount. For example, one point on a $100,000 loan is $1,000. Paying points up front in your closing costs is done to get a lower interest rate over the life of the loan. It is income tax deductible (consult with a CPA for individual advice).

TIL, Truth-in-Lending form

The form that gives additional information about your financing, including whether or not there is a prepayment penalty and the total cost of your financing.

underwriter

A person who approves or denies loan applications.

YSP, Yield Spread Premium, back-end commission

Money paid by the wholesale lender to the mortgage broker after the loan closes when the interest rate is higher than par rate.

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