An Explanation of Common Mortgage Terms

APR (annual percentage rate):
Federal law requires that companies disclose to the customer the annual percentage rate associated with his or her loan -- and to disclose that APR anytime an interest rate is quoted to the customer (or to the general public). The annual percentage rate is the actual cost of borrowing the money in terms of a yearly rate -- the actual cost of you borrowing the money is the interest rate and the fees associated with obtaining that rate (i.e. origination fee, discount points, underwriting fee, etc. and any other lender required fee). Except in the case of a no-closing cost type loan, the APR is always higher than the interest rate.

B,C Non-conforming Financing
B,C Non-conforming financing offers solutions to people with less than perfect credit. Typically, these loans require a down payment from 10%-30% depending on the borrowers credit. For more info (click here).

closing costs:
The closing costs are the fees required and associated with the processing and closing of your loan. Closing costs will vary from company to company, but generally include origination fees, appraisal fee, credit report fee, flood certification fee, underwriting/admin fees, title search, title insurance (see below), attorneys fees, and state required and recording fees. In the state of Georgia, consumers are charged an intangible tax at $3.00 per thousand of the loan amount ($100,000 loan amount = $300 tax) and a $6.50 GA Residential Mortgage per loan fee. Because some of the fees are based on the amount financed, closing costs will vary based on the loan amount requested.

Construction to Permanent Financing
A C-P loan offers a one time close construction to perm loan for customers interested in building and financing their new home. During the construction period, the general contractor receives draws to cover costs and expenses, and as the draws increase, so does the loan amount and subsequently the amount the borrower pays per month. At the end of the construction period, the loan is automatically converted to a lower interest rate first mortgage.

conventional financing:
Conventional financing is for borrowers with an established credit and employment history. Down payment options vary from as little as 0-3%, and through Automated Underwriting, approvals can be issued in minutes, not days! Conventional financing generally requires that a borrower have at least two months mortgage payments in reserve after closing.

discount point(s):
A discount point is one percentage point of the loan amount (i.e. for $100,000 loan, one discount point would be equivalent to $1,000). This up-front money is used to buy down the interest rate on the loan.

earnest money:
At the time of presenting an offer on a house, an agent will ask for earnest money from the purchaser in an amount of 1-1.5% of the sales price. These funds are held in an account of the real estate firm and are credited towards the purchasers down payment at the time of closing. The sales contract outlines certain conditions for which a purchaser may cancel the contract and be returned his or her earnest money (i.e. unable to obtain financing, inspection problems, etc). If a purchaser does not comply with the terms of the contract, he or she may forfeit the earnest money entirely.

escrow account:
An escrow account is basically a savings account controlled and held by the lender for the taxes and the homeowners insurance for your property. Each month, a portion of your monthly payment goes into this account (one months tax and one months insurance) and when those bills become due, (once a year for insurance and once or twice a year for taxes) the lender pays them on your behalf.

FHA financing:
FHA financing is focused towards first-time home buyers. FHA requires a minimum down payment of 3% (which can be a gift from a family member or non-profit) and is generally more liberal towards credit and employment issues. FHA also allows the seller to contribute more towards a buyers' closing costs and prepaids -- minimizing the amount of cash needed at closing. FHA financing generally requires that a borrower have at least one month mortgage payment in reserve after closing. At this time Hillside Lending, LLC does not offer FHA financing.

good faith estimate:
The good faith estimate is a disclosure that lenders are required to provide to borrowers that discloses the itemized costs associated with the loan processing, closing and funding. The Good Faith Estimate should also include an estimate of the funds needed to establish an escrow account with the lender. To request a good faith estimate (click here).

no closing cost loan:
All mortgage transactions have costs associated with them. In some situations it is beneficial to allow those costs to be paid for by the broker or lender. By raising the interest rate of the loan, mortgage brokers are able to pay for some or all of the costs associated with the transaction. This scenario is not a special type of loan program per se, but rather, a special type of pricing on the rate in order to cover some of the up-front costs. A "no closing cost loan" type pricing makes the most sense for the person who only plans on keeping his or her current loan/home for 2-3 years.

No DOC Financing
No Doc financing is for people who need loans with little or no documentation of income, employment or assets. Hillside Lending, LLC offers No Doc loans with as little as 5% down. Because there is no documentation of income, employment, or assets, these loans are highly credit driven.

100% Financing
100% Financing is for customers who have excellent credit and employment histories, but do not have the assets accumulated to put down a large down payment. Because of the increased risk of backing a loan for the full amount of the sales price, these loans have higher interest rates than a standard conventional loan.

prepaids:
Prepaid expenses include those costs that are required to be paid in advance at the time of closing. These costs include one year of homeowner's insurance and the funds necessary to set up the escrow account for your loan (see above: escrow account). This figure will also include the amount of prepaid interest required to be paid at the time of closing. Interest is paid per day from the day of closing through the end of the month. Prepaid expenses will be determined by the homeowner's insurance premium, the property tax bill and the closing date of the transaction. The estimated prepaid expenses will be listed and itemized on the Good Faith Estimate. To request a good faith estimate (click here).

PMI (Private Mortgage Insurance):
PMI, or private mortgage insurance, is paid by the purchaser anytime the first mortgage obtained is more than 80% of the value (or acquisition cost) of the house. You can avoid paying PMI by putting a 20% or more down payment on the purchase of the house, or by having a combination of a first and second mortgage (piggyback loan, 80-10-10), or by utilizing a lender funded or "No PMI" loan. (more about avoiding PMI)

prequalification:
Being pre-qualified involves talking with a mortgage consultant and determining what type of financing is available to you based on your income, employment, assets and credit -- within the terms of your down payment and monthly payment objectives.

pre-approval:
The pre-approval process involves completing a loan application, reviewing your bank statements and paycheck stubs, completing lender required disclosures and submitting your loan to an underwriter. The underwriter is the person who makes the final decision on your loan. (apply online today)

TIL (Truth-In-Lending) disclosure:
A Truth-In-Lending Disclosure is a form which discloses to the consumer important information about the loan and the costs associated with obtaining that loan. Most importantly, the TIL (truth-in-lending) discloses the APR associated with the loan (see above: APR), the total amount of payments on the loan, and whether or not there is a pre-payment penalty associated with the loan.

title insurance:
Owners title insurance, which is optional in the state of Georgia, can be purchased at the time of closing to protect a borrowers equity in the property -- to protect you in case someone ever makes a claim as to the ownership of your property. Owners title insurance protects the purchaser in the event of a problem in the "chain of title" to the property. It also protects against losses in the event of fraud, forgery or undisclosed heirs. The premium is a one time fee, paid at closing, which protects the borrowers interest in the property for as long as they own the house. (more about owner's title insurance)

VA Financing
VA financing is for active military, military veterans and reservists (under certain conditions). VA allows lenders to offer 100% financing with no money down. At this time Hillside Lending, LLC does not offer VA financing.

Do you have more questions which were not answered here? email your questions to info@hillsidelending.com