Obtaining a mortgage loan means dealing with a lot of paperwork, from the documents you have to submit to documents you have to read and sign. More often than not, you’re dealing with terms and conditions on various mortgage types that may be so difficult to understand that you just want to pull out your hair. But not understanding the terms of the loan could mean a very costly mistake on one of the most expensive purchases you’ll ever make.

So before you sign on the dotted line, you should learn some basic mortgage terminology to keep your eyes from glazing over when you hear words like “amoritization” and “PITI.” To help you tackle them, here’s our guide to the top mortgage terms you need to know.

Adjustable rate mortgage: A mortgage loan with an interest rate that will change or “adjust” periodically, such as every three years or annually after the fifth year, changing the monthly payment due. ARMs are best if you plan to sell the home before the rate adjusts.

Amortization: The schedule for paying off a mortgage loan, showing the regular, required payments toward principal and interest over a set period of time. AOL Real Estate’s mortgage calculator shows you an amortization table.

Credit score: A number between 300 and 850 used to show creditors and lenders the creditworthiness of a potential loan borrower. The score, determined by credit bureaus such as Equifax, Experian and TransUnion, is calculated through an analysis of a person’s borrowing and repayment habits. How timely you are paying bills or how much revolving credit card debt you have can affect your score. The higher the score, the better.

Equity: The value of a property minus the remaining mortgage balance. Equity is gained or lost by the appreciation or depreciation in the market value of the property. It is also typically gained as payments toward principal are made on the mortgage loan. You can rapidly increase your equity, and shave off tens of thousands in interest, by making one extra mortgage payment a year in a lump sum or paying a little more each month.

Fixed-rate mortgage: A conventional mortgage loan that has an interest rate and monthly payment that remain the same for the life of the loan (typically, 15 or 30 years, but 40-, 50- and 10-year loans are possible). A 15-year mortgage offers quicker repayment for faster equity buildup, usually at a lower interest rate than longer term mortgages. A fixed-rate mortgage is usually your safest financial choice.

Home equity loan: A loan or second mortgage that a borrower can take out against the equity in a home, essentially trading equity for cash. The interest paid on a home equity loan is tax deductible.

Home equity line of credit: Similar to the home equity loan, but instead of getting all the money at once, the borrower is essentially approved for a certain amount that can be withdrawn in increments, using a check book or debit card, up to a limit.

Interest-only mortgage: Allows buyers to pay just the interest on a mortgage at the beginning of the loan, then after a set period, typically a year or less, payment toward the principal is also made, at which time the minimum monthly payment typically increases.

Jumbo loan: A non-conforming loan, or “jumbo mortgage,” that is larger than the home loan limits that Fannie Mae and Freddie Mac are willing to back, or guarantee, because they are considered risky. Jumbo loans have slightly higher rates than conforming loans.

Loan origination fees: Sometimes called “points,” are loan application processing fees equal to 1 percent of the loan amount. Do not confuse these fees with mortgage points. (See “Closing Costs: How Much to Budget”).

Lock or lock-in period: The timeframe in which a loan cannot be paid off earlier than stated without financial penalty, so that the lender is assured of obtaining a certain minimum return on the investment. This also refers to how long a lender has agreed to hold a quoted interest rate unchanged on the loan, regardless of whether the going market rate increases before the final paperwork is signed. The rates are usually held, or “locked in,” for anywhere from 30 to 90 days.

Mortgage insurance: Protects the lender should the borrower default on the loan. The insurance is typically issued by the FHA or a private mortgage insurer. In the latter case the insurance is known as “PMI.” Mortgage insurance is usually required if the homebuyer borrows more than 80 percent of the market value or purchase price of the home. If you need PMI, note that it can be canceled once you reach 20 percent equity in your home, either through price appreciation or by paying down the principal balance for your loan. You’ll have to make your request in writing to the mortgage lender.

Mortgage points: Lender’s fees or advance interest that a borrower pays up front in exchange for a lower interest rate for a certain part of the loan term, often over the life of the loan. Also known as “discount points,” these points are based on a percentage of the loan, with each point being equal to 1 percent of the loan. So, one point costs $2,000 for a $200,000 mortgage loan. (See “Closing Costs: How Much to Budget.”)

PITI: Pronounced “pity,” it is an acronym for principal, interest, taxes and insurance, the four components of a mortgage payment.

Pre-payment penalty: A fee assessed by a lender as a charge to a loan borrower who makes an advanced payment or pays off a loan earlier than the due date or payment terms in the agreement. The penalty fee compensates the lender for the loss of some of the interest that would have been earned, had the loan continued for its full term.

Principal: The part of a monthly loan payment that reduces the outstanding balance of a mortgage, and becomes the equity for the borrower. By making extra payments toward your principal on a monthly or annual basis, you can greatly reduce how much interest you pay over the life of the loan.

Qualifying ratios: Calculations that the lenders use to determine the largest mortgage that a homebuyer can afford to obtain, or that the lender is willing to approve.

Refinancing: The process of obtaining a new loan to replace an existing loan. Typically this is done to reduce an interest rate or to extend the loan over a different period of time (for instance, starting again at 30 years or down to 15 years). It is done either to lower monthly payments, pay off a debt sooner, switch an adjustable rate mortgage to a fixed rate one, or obtain some cash back.

Source: realestate.aol.com

Earlier this year, Federal Housing Association (FHA) seemed to be in a steep hole when it came to the REO inventory. However, a recent report shows that FHA has sold a record number of REO in June, breaking the record they set in May.

According to U.S. Department of Housing and Urban Development (HUD), the FHA acquired 7,667 REO in June and 13,609 properties. (May’s total sales equaled 12,671 properties.) At the end of Q1 2011, the total FHA REO inventory was 69,959. At the end of Q2, the number is now 54,645, according to an article by Calculated Risk.

Fannie Mae and Freddie Mac are expected to release Q2 results, including REO acquisitions and inventory, later this week. According to Diana Golobay at Housing Wire, Freddie Mac could release their Q210 earnings later this week, but may wait until the close of business on Monday. It is anticipated that Fannie will release it’s report on Thursday.

In addition to an anticipated rough quarter, mortgage investors are experiencing frustration in failed mortgage bond deals. Both Fannie and Freddie ordered to de-list from the New York Stock Exchange (NYSE).

Now, prized mortgages insured by the FHA will become more challenging to get on homes that cost several hundred thousand dollars.

According to an article for TCPalm, the government is set to lower the maximum amount that can be borrowed and still qualify for FHA insurance.

FHA mortgages are prevalent with many buyers because of their appealing interest rates and down payments as low as 3.5 percent. More than 40 percent of home-buying loans were FHA insured last year.

With the lower ceiling, borrowers will have to apply for more conventional loans that are not FHA approved; borrowers could be subject to down payments of 20 percent and possibly higher interest rates.

“Given the economic environment these past few years, many buyers need these more reasonable requirements … FHA will give you financing two years after a bankruptcy, whereas a conventional loan requires a wait of four years,” said Palm City-based Jim Weix, owner of The Real Estate Co. — Treasure Coast Inc, in the article for TCPalm. “FHA is more understanding of those credit dings that people suffer when they lose their job or suffer any of the many employment disasters that are common today.”

Source: www.chicagoagentmagazine.com

Remember how Spring was always the home-buying season? Don’t count on that happening this year and you can point the finger, at least in part, at the new lending hoops buyers must jump through. According to MortgageMatch.com, one out of three home buyers will fail to get a mortgage this spring.

Understanding the mortgage process and meeting lenders’ more stringent qualification requirements have become big obstacles for applicants, according to a survey the site conducted. Most recent home buyers — 70% — described the mortgaging process as more difficult than they expected. And those who bought homes during the bubble years, when mortgage loans were given out like candy at Halloween, are especially shell-shocked by the new lending standards.

One of the biggest problems home buyers run into today concern their credit scores and how, in general, they don’t work to improve them before applying for a loan. In the same vein, a recent Fannie Mae survey found that poor credit was the top reason that renters gave for not buying a home.

(Following closely behind poor credit was the self-awareness that they couldn’t actually afford to buy or keep up a home and the perception that now is not really a good time to buy. Hooray for enlightenment on the first point, but with home prices back to 2002 levels and interest rates among the lowest ever seen, how isn’t this a good time to buy?)

Back to the mortgagematch.com study: A full 35% of successful buyers said they didn’t even know their credit scores when they started to look for houses to buy. Somewhere, a Realtor is clenching his or her teeth just reading that. These buyers decide they want to buy a house but don’t know their credit scores? Home-buying is a process that starts with getting your financial house in order and then hitting the brick and mortar ones.

Sue Stewart, senior vice president for Move, Inc. said, “Buyers who prepare themselves financially early before they start looking for a home will have a better chance of succeeding. If you want to be in a position to land the best mortgage … get your documentation together and find a lender you trust.”

Some tips before you apply for a mortgage to help you beat the odds:

1. Pay down your debt. Reduce your total debt — your monthly payments on cars, student loans, credit cards — before you start the mortgage application. The goal is to reduce your overall debt-to-income ratio and improve your credit score. The somewhat unrealistic guideline that lenders want everyone to toe is that your total housing expenses not exceed 28% of your monthly gross income. For decades, people have exceeded that quite happily but now the lenders believe they know best and they control the money.
2. Clean up your credit. Start with figuring out what your reported scores are. Obtain your free credit report from each of the three credit bureaus (Equifax, Experian and TransUnion) and carefully review them, noting all negative items. Correct inaccurate or outdated items. Your credit score needs to be a minimum of 680 — preferably 720 or higher — to qualify for a lower interest rate on a mortgage.
3. Delay any large purchases, don’t apply for any new credit until you close on your house. Lenders check credit reports at the time you apply and then again right before closing. A last-minute spending spree is going to be flagged. Once you clear the mortgage hurdle, feel free to move about the cabin and decorate your new house to your heart’s content. (That’s said in jest; charge wisely.)
4. Increase your down payment. This reduces the loan-to-value ratio and improves your chances of getting a loan. How do you do this? You save up for it or call up your rich relatives. There are also a lot of community programs to help first-time buyers, so check around.
5. Get your paperwork together. Your lender will want to see pay stubs, bank statements, assets, credit documents, income tax returns, all financial statements and possibly your fourth grade report card. OK, I made that last one up, but you get the idea. This is paperwork central. And you better make copies of everything you send them in case they ask you for it a third time.
6. Develop some patience. You’re going to need it.

Source: www.walletpop.com

Being able to afford a home has inspired many couples to tie the home ownership knot, married or not. Even those who already own homes are looking at uber-low rates and running to refinance. But with lending guidelines tighter than a Nicki Minaj outfit, more and more wanna-be buyers are running into a major financial/romantic dilemma: one partner qualifies for the home loan, but the other’s job record, credit blemishes or insufficient income fouls up the financing.

What’s a couple to do when one partner can’t qualify for the mortgage? Take these five steps:

1. No Blame, But Take Action!

It’s an easy trap to fall into, the credit-worthy partner becoming upset that their dream home or the chance to save thousands might slip away through no fault of their own. In this way, a mortgage glitch can easily snowball into blame-gaming, name-calling, finger-pointing relationship awfulness. If you get word that your mate can’t qualify for the loan you seek, take a deep breath and discuss the situation. Stay action-oriented and plan your approach to overcoming this obstacle to keep the conversation constructive, and avoid resentment and hurt.

2. Diagnose and Fix on the Quick

Consult with your mortgage broker about what, specifically, is stopping your partner from being able to get the loan, and whether the issue is fix-able. If the issue is that your mate has been out of work for 20 of the last 24 months, you might not be able to do much to remedy that particular issue besides offering an explanation to the lender. However, if the issue is that her credit score is 15 points below where it needs to be, your mortgage pro can likely offer some quick fixes (e.g., pay these two bills down by $X, then have your mortgage broker or banker do a 72-hour rapid rescore) to get the whole loan process back on track within a week’s time.
3. Qualify On Your Own

It never hurts to get a basic understanding of your solo purchasing power; you might find that you are able to qualify for the home on your own. If you go this route, and you want the home to be jointly owned, most lenders will now allow a non-borrower (i.e., someone who didn’t go on the loan) to be added to the property’s title at closing. But talk with a local real estate, family law or estate planning attorney before you add your mate to title; if you break up, you could be stuck with 100% of the loan obligations, and only half of the rights to the property.

4. Get a Co-Borrower

Many lenders will allow a relative to be a “non-occupant co-borrower,” newfangled lingo for the old-fashioned co-signer. If you’ve encountered an opportunity that truly is too good to pass up, you might be able to qualify — as a couple or on your own — to buy with the help of your mom, dad or dear Aunt Gertie. Check with your loan broker or banker.

5. Wait and See

In many real estate markets, home values are headed downward. This less-than-fabulous news for sellers is actually welcome news for home buyers, who may have many months or even a number of years to take advantage of today’s affordability by even the most optimistic of estimates. No need to rush into this major commitment, for which your finances may not quite be sufficiently mature.

If your sweetie can’t get a loan right now, get a clear set of action steps from your mortgage professional including the things that need to happen for him or her to pass mortgage muster. Need to be on the job longer? Got lots of credit rehab to do? Need to boost that income? All doable, with time. Luckily, you’ve got some. So, to steal a phrase from our friends across the pond, “keep calm and carry on.”

Source: walletpop.com Tara-Nicholle Nelson