The process of getting a mortgage has it’s own lexicon. There are words, acronyms and shorthand that take a little getting used to. Here’s a quick overview of a few of the terms you are likely to hear as you work with a Loan Officer on your mortgage:
Borrower The person borrowing the money to purchase or refinance a home (that’s you)
Lender Usually a bank or financial institution who offers the mortgage to the borrower (that’s us)
Interest The finance charge the borrower pays to use the Lender's money to purchase the Property
Mortgage An agreement where a homeowner pledges an interest in their property (the house you have contracted to buy) as collateral for a loan on that same property
Point A point is 1% of the loan amount. Sometimes a borrower will pay a point (or more) to receive their loan at a lower interest rate.
Principal The total amount borrowed
Property The home or piece of real estate being financed
Term The length of time scheduled to repay the loan (usually 15 or 30 years)
PMI or MI Mortgage Insurance, usually required on loans where the downpayment is less than 20% of the property value.
The 1003, aka Mortgage Application The form that borrower completes to let a mortgage company know they are interested in learning about the mortgage product and terms available to them. Most lenders, including NJ Lenders, use the Universal Residential Loan Application, or the “ten-oh-three” (Form 1003).
Processing This is the general term used while we collect and double check all of your information and documents to ensure you are able to accept ownership of and responsibility for the home you have agreed to purchase. A processor is the person coordinating this step of the process and works closely with your Loan Officer.
The 4506, aka accessing your Tax Info Part of the research into your financial history will include checking your income and that confirming that you’ve paid your taxes. Form 4506 is an IRS form that the borrower signes giving the IRS permission to release a copy of your tax returns to the lender.
Underwriting This is the step where all of the documents are reviewed and validated, checked for errors or inconsistencies and the loan is approved to be funded.
The Close When all of the documents are prepared and final loan statements are ready, usually prepared by the Title Company, a meeting is set up with the buyer, seller, Realtor(s) and Loan Officer to sign all the paperwork.