Glossary - Mortgage Terms - Page #1

An adjustable rate mortgage (ARM) is a type of loan where the interest rate can change periodically during the loan's lifespan. Unlike a fixed rate mortgage, the interest rate on an ARM is not fixed and can fluctuate based on market conditions. This means that the monthly mortgage payments can also change over time, potentially increasing or decreasing depending on the interest rate adjustments. This flexibility in interest rates is the defining characteristic of an adjustable rate mortgage.

A consumer reporting agency refers to companies like Equifax, Experian, and TransUnion that gather information from creditors and public records. These agencies compile this data to create credit reports and scores for individuals. They play a crucial role in providing accurate information about an individual's creditworthiness to lenders, landlords, and other entities that use this information to make decisions. By defining a consumer reporting agency as such, it highlights the specific companies involved in this process and their role in collecting and reporting credit information.

An appraisal is a document that provides an estimate or determination of the value of a property. It is conducted by a licensed appraiser who evaluates various factors such as the property's condition, location, and comparable sales in the area. This document is important in real estate transactions as it helps lenders, buyers, and sellers understand the fair market value of the property. It is different from a certified inspection, which focuses on the property's physical condition and functionality. The appraisal is typically used to determine the maximum loan amount that can be approved for the property.

CLTV, or Combined Loan-to-Value, is a ratio that is calculated by adding up all of the outstanding balances that will be remaining when a loan is closed and dividing it by the lesser of the sales price or value of the property. This ratio helps lenders assess the risk associated with a loan by considering the total amount of debt on the property in relation to its value. A higher CLTV indicates a higher level of risk for the lender.

The correct answer is "The amount of credit provided to the borrower." AMOUNT FINANCED refers to the total sum of money that is borrowed by the borrower, excluding any additional fees or charges. It represents the actual amount of credit that the borrower will have access to and is responsible for repaying.

An Automated Underwriting System (AUS) is a complex computer program that analyzes historical data from millions of loans to assess whether the information provided on a loan application aligns with the requirements set by the lender or agency. By utilizing this vast amount of data, the AUS can efficiently evaluate the risk associated with a loan and make a decision on whether to approve or deny it.

APR is a rate that shows the total cost of borrowing, including interest and other fees, as a percentage of the loan amount. It takes into account all the finance charges associated with the loan, such as origination fees, and provides a standardized way to compare different loan offers. By calculating APR, borrowers can easily compare the actual cost of borrowing from different lenders, helping them make informed decisions about their loans.

An application fee is a charge that is collected by the lender to cover the cost of preparing the loan application for underwriting. It can also be used to describe the collection of fees for services such as the appraisal and credit report. This fee is typically paid by the borrower and helps cover the administrative costs associated with processing the loan application.

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The closing fee refers to a fee paid to the title insurance company that covers the services provided by the closer, such as handling the signing of the closing documents and the disbursement of funds. This fee is separate from the fees collected by the lender for making the loan and the charge for preparing the application for underwriting.

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