Terminology to Help you Navigate your Los Angeles Home Buying and Mortgage Transaction

 
  Words …
    That’s all clients hear, if they don’t understand themeaning of the words being used or thrown at them.  And that leads to frustration, lack of action, confusion, and loss of interest … something totally and completely maddening, plus a waste of time, should you be the potential client.

    They MAY be hearing ya, but you’re not getting through! Understanding Mortgage Terminology

     As a mortgage lender, I must keep in mind the fact that my clients (and referral partners) don’t deal in the terminology of mortgages each and every second like I do.  The abbreviations and industry-wide knicknames that I know so well, may be completely unfamiliar to those outside of the mortgage world.
    So two things become glaringly obvious to me when dealing with the topic of mortgage words and terminology …
     We mortgage lenders must take care, slow down, and make efforts to speak in terms, and explain with words that clients can easily understand and remember … and then do likewise when giving instructions or asking them to take action regarding their transaction.

     And we must also take the time to educate, when necessary.  Provide the definition of some of the terminology, abbreviations, and words that our clients (and referral partners) may be hearing during the course of their transaction, but not understand.
     I make a Glossary of Financial Terms  available on my personal website, www.genemundt.com.  That way, any client (or website visitor) that is unsure of a word or term they are hearing or reading, can easily refer to my website glossary and find a clear, concise definition that helps them understand and better navigate their home buying and mortgage transaction.  This feature has been a “hit” with my clients and many have thanked me for including my glossary on my website.
     The words and terminologies that I see causing the most inquiries and confusion are:
  • Annual Percentage Rate … Referred to as APR:  – An interest rate reflecting the cost of a mortgage as a yearly rate.  This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs.
  • Gross Monthly Income: - The total amount the borrower earns per month, before any expenses are deducted.

  • Loan-to-Value Ratio:  –  The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.  (A VERY timely and important definition in the current market!)
  • Origination Fee: -  The fee charged by a mortgage lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of face value of the loan.
  • Power of Attorney:  –  A legal document authorizing one person to act on behalf of another.

  • Private Mortgage Insurance … Referred to as PMI:  –  In the event that you do not have a 20% down payment, mortgage lenders will allow a smaller down payment.  With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance … insurance that would offset losses by the lender should the borrower not be able to repay the loan.

  • REO (Real Estate Owned):  –  Property which is in the possession of a mortgage lender as a result of foreclosure or forfeiture.

  • Short Sale:  –  A Short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property’s loan.  It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower.  Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves heft fees for the bank and poorer credit report ourcomes for the borrowers.  This agreement, however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency.  Each case is decided individually in that regards.     
  • Truth in Lending Act:  –  A Federal law that requires financial institutions to disclose specific information about the terms and cost of credit, including the financing charge and the annual percentage rate (APR … see above).

  • Underwriting:  –  The decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.      

      Many more financial, mortgage, and legal terms are available on my website at: 
Gene Mundt Financial Terms Glossary


     Knowing and fully understanding the words, the requests, the financial documents needed, the costs and charges, the actions taking place within your home buying and mortgage transaction is so very important.  Having a handy glossary to refer to and assist you in achieving that understanding can help tremendously.

    Obtaining a mortgage today is serious financial business … and a task that has become increasingly difficult to understand and conduct over the last few years.  There is no denying that.

    So, finding and working with a mortgage lender that will take the time, make the effort, to assist you with the details … educate … guide … listen … explain everything thoroughly … has never been more important than now.
    But … that being said.  Should you, as a client or referral partner, still not understand something being told to you or explained to you … STOP YOUR LENDER IMMEDIATELY.  Do not proceed until you get the answers you need and you feel comfortable resuming the course of the transaction or Closing.
   Words.  Don’t let that be all you hear …
    
Originally posted at:  http://www.genemundt.com/blog/2012/01/19/Mortgage-Terminology-Definitions-to-Help-You-Better-Navigate-Your-Home-Buying-and-Mortgage-Transaction.aspx

Gene Mundt

I am a 30+ year veteran of the mortgage/banking industry, with extensive knowledge and experience in mortgage and credit services, management, and real estate appraising. I am also an IL Certified Financial Planner. This unique combination of education, experience, and expertise affords me more complete and in-depth resources from which to service my clients and their needs.

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