In’s-and-Out’s of Utah Mortgages

Utah mortgages and loans can seem intimidating when you aren’t familiar with the details of how they work. We are hear to help you feel safer and more confident when looking for loans. Mistakes can easily be made without full knowledge of the type of loan or mortgage you are getting into. Which is why we want to provide you as much information about Utah Mortgages as we can.

Amortization: repayment of a Utah mortgage loan through monthly installments of principal and interest; the monthly payment amount is based on a schedule that will allow you to own your home at the end of a specific time period (for example, 15 or 30 years).

Annual Percentage Rate (APR): calculated by using a standard formula, the APR shows the cost of a loan; expressed as a yearly interest rate, it includes the interest, points, mortgage insurance, and other fees associated with the loan.

Appraisal: a document that gives an estimate of a property’s fair market value; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.

ARM: Adjustable Rate Mortgage; a Utah mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the Change in monthly -payment amount, however, is usually subject to a Cap.

Balloon Mortgage: a mortgage that typically offers low rates for an initial period of time (usually 5, 7, or 10) years; after that time period elapses, the balance is due or is refinanced by the borrower.

Cap: a limit, such as that placed on an adjustable rate mortgage, on how much a monthly payment or interest rate can increase or decrease.

Cash Reserves: a cash amount sometimes required to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.

Conventional Loan: a private sector loan option, one that is not guaranteed or insured by the U.S. government.

Debt-to-Income Ratio: a comparison of gross income to housing and non-housing expenses; With the FHA, the-monthly mortgage payment should be no more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income.

Deed: Legal document by which title to real property is transferred from one owner to another. The deed contains a description of the property, and is signed, witnessed, and delivered to the buyer at closing.

Equifax: One of the three largest credit bureaus in the United States.

Equity: The difference between the current market value of a property and the total debt obligations against the property. On a new Utah mortgage loan, the down payment represents the equity in the property.

Escrow Account: a separate account into which the lender puts a portion of each monthly mortgage payment; an escrow account provides the funds needed for such expenses as property taxes, homeowners insurance, mortgage insurance, etc.

Experian: One of the three largest credit bureaus in the United States.

Fannie Mae: Federal National Mortgage Association (FNMA); a federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers.

Federal Housing Administration (FHA): Federal Housing Administration; established in 1934 to advance homeownership opportunities for all Americans; assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults; this encourages lenders to make loans to borrowers who might not qualify for conventional mortgages.

Freddie Mac: Federal Home Loan Mortgage Corporation (FHLM); a federally-chartered corporation that purchases residential mortgages, securitizes them, and sells them to investors; this provides lenders With funds for new homebuyers.

Good Faith Estimate: an estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.

HUD1 Statement: A standard form which itemizes the closing costs associated with purchasing a home or refinancing a loan.

LIBOR (London Interbank Offered Rate): The interest rate charged among banks in the foreign market for short-term loans to one another. A common index for ARM loans.

Loan Application: An initial statement of personal and financial information required to apply for a loan.

Loan-to-Value (LTV) Ratio.– a percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased; the higher the LTV, the less cash a borrower is required to pay as down payment.

Lock or Lock-in: A lender’s guarantee of an interest rate for a set period of time. The time period is usually that between loan application approval and loan closing. The lock-in protects you against rate increases during that time.

Margin: an amount the lender adds to an index to determine the interest rate on an adjustable rate mortgage.

Mortgage Broker: a firm that originates and processes loans for a number of lenders.

Negative Amortization: A loan payment schedule in which the outstanding principal balance of a loan goes up rather than down because the payments do not cover the full amount of interest due. The monthly shortfall in payment is added to the unpaid principal balance of the loan.

Note: Legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time. The agreement is secured by a Utah mortgage or deed of trust or other security instrument.

Origination Fee: the charge for originating a loan; is usually calculated in the form of points and paid at closing.

PITI: Principal, Interest, Taxes, and Insurance – the four elements of a monthly mortgage payment; payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance (homeowner’s and mortgage, if applicable) goes into an escrow account to cover the fees when they are due.

Power of Attorney: Legal document authorizing one person to act on behalf of another.

Prepaid Interest: Interest that is paid in advance of when it is due. Typically charged to a borrower at closing to cover interest on the loan between the closing date and the first payment date.

Prepayment Penalty: Fee charged by a lender for a loan paid off in advance of the contractual due date.

Private Mortgage Insurance (PMI): Insurance to protect the lender in case you default on your loan. With conventional loans, Utah mortgage insurance is generally not required if you make a down payment of at least 20% of the home’s purchase price. (Note, however, that FHA and VA loans have different insurance guidelines.)

Purchase Agreement: Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.

Reconveyance: The transfer of property back to the owner when a Utah mortgage loan is fully repaid.

Recording: The act of entering documents concerning title to a property into the public records.

Refinancing: The process of paying off one loan with the proceeds from a new loan secured by the same property.

RESPA: Real Estate Settlement Procedures Act. RESPA is a federal law that gives consumers the right to review information about loan settlement costs. The law gives you the right to review this information after you apply for a loan, and again at loan settlement. The law only obliges lenders to provide these settlement costs after application.

Right to Rescission: Under the provisions of the Truth-in-Lending Act, the borrower’s right, on certain kinds of loans, to cancel the loan within three days of signing a Utah mortgage.

Second Mortgage: An additional mortgage placed on a property that has rights that are subordinate to the first mortgage.

Settlement (or Closing): The settlement or closing is the conclusion of your real estate transaction. It includes the delivery of your security instrument, signing of your legal documents and the disbursement of the funds necessary to the sale of your home or loan transaction (refinance).

Title: Document which gives evidence of ownership of a property. Also indicates the rights of ownership and possession of the property.

Title Company: A company that insures title to property.

Title Insurance: insurance that protects the lender against any claims that arise from arguments about ownership of the property; also available for homebuyers.

Title Search: a check of public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property.

Trans Union: One of the three largest credit bureaus in the United States.

Truth-in-Lending: a federal law obligating a lender to give fuII written disclosure of aII fees, terms, and conditions associated with the loan initial period and then adjusts to another rate that lasts for the term of the loan.

Underwriting: the process of analyzing a loan application to determine the amount of risk involved in making the loan; it includes a review of the potential borrower’s credit history and a judgment of the property value.

Verification of Deposit (VOD): Document signed by the borrower’s bank or other financial institution verifying the borrower’s account balance and history.

Verification of Employment (VOE): Document signed by the borrower’s employer verifying the borrower’s position and salary.

Utah Mortgages and more…

From Title Insurance to Fannie Mae, we want you to fully understand what we do at Princeton Mortgage because we care about you. We want to aid your search for ways to afford your investment. That way, we can combine your knowledge with our knowledge of Utah mortgages to find the right option for you today.

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