Mortgage Terminology Explained
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Mortgage Terminology Explained
Overview
Applying for a mortgage can feel like entering a world with its own unique language. You might encounter many unfamiliar terms, and while your mortgage professional should clarify these for you, having some basic knowledge beforehand can make the process smoother. Here's a guide to help you understand key mortgage terms and be more prepared during your application meeting.
Key Mortgage Terms
HUD
HUD stands for Housing and Urban Development, referring to the U.S. Department of Housing and Urban Development's Settlement Statement documents related to home financing. When your loan officer asks you to sign the HUD, they mean this settlement statement, which includes all payoff information and associated fees.LTV and CLTV
- LTV (Loan to Value): This indicates the percentage of the home's value being financed. For example, an $80,000 loan on a $100,000 home equates to an 80% LTV. Typically, higher LTV loans come with higher interest rates and mortgage insurance.- CLTV (Cumulative Loan to Value): This combines the amount financed across multiple loans for the same property. If you have a first mortgage of $80,000 and a second mortgage of $20,000 on a $100,000 home, the LTVs are 80% and 20%, respectively, totaling a CLTV of 100%.
Designation 80/20
This term refers to acquiring 100% financing through two loans instead of a single one. The first mortgage covers 80% of the home’s value, while the second covers 20%. Variations like 80/15 and 80/10 are also available, and you should discuss these options with your loan officer or financial planner.Stips
Short for stipulations, these are the requirements set by your lender's underwriting department to clear your mortgage for closing. Common stipulations include copies of pay stubs, bank statements, and employment and rent verifications.VOR and VOE
- VOR (Verification of Rent): Proof of your rent history, which might be required by some lenders.- VOE (Verification of Employment): Proof of your employment, which might also be necessary depending on the lender's requirements.
HELOC
Although not typically a first-time mortgage term, HELOC (Home Equity Line of Credit) is a common acronym. It allows borrowers to access their home equity, similar to using a credit card. You can draw up to the full loan amount, repay, and borrow again. Moreover, the interest paid on a HELOC is tax-deductible.Conclusion
While this isn't a comprehensive list, understanding these terms will give you a solid foundation for discussions with your loan officer or financial planner when financing a home. Don’t hesitate to ask questions and ensure you’re fully informed throughout the process.
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