Taking out a mortgage loan to pay for a home is a major financial commitment. Therefore, it's critical that you understand all of the terms and conditions of your loan so that you are able to comply with these requirements over the life of the loan. That said, first-time homebuyers may encounter some unfamiliar terminology while working with a broker during the mortgage application process. Here are a few terms that you should be familiar with to ensure you understand all aspects of mortgage loans.
1. Qualifying Ratios
Your mortgage broker evaluates many pieces of information when determining how to best approach securing your mortgage loan. You will probably hear your broker refer to qualifying ratios as you discuss your loan options. Qualifying ratios are calculations used to help determine if you will qualify for a specific mortgage loan. Mortgage lenders typically have strict requirements in terms of a borrower's existing financial obligations and ability to repay.
Qualifying ratios calculate your housing expenses as a percentage of your total income, as well as total debt obligations as a percentage of your total income. These calculations are used by mortgage brokers to select which financial institutions will offer you the most attractive mortgage loan.
2. Abstract of Title
In order to determine if you can take out a mortgage on a piece of real estate, an abstract of title must be completed. This is essentially a search through all recorded documents pertaining to a property. This title search will identify any liens, taxes owed, or unpaid mortgages that might be connected to a property.
Any issues that arise in the abstract of title could mean an increase in your financial responsibilities if you were to purchase the property. A mortgage lender will need this information to help identify the right type of loan to meet your needs.
Your mortgage broker will refer to the underwriting process as you apply for a mortgage loan. The underwriter is the person responsible for approving or denying your loan application based on a financial institution's mortgage requirements. They are responsible for reviewing and verifying all aspects of your loan application. It's critical that your mortgage broker remains in constant contact with the underwriter so that any supporting documentation or clarification required can be submitted in a timely manner.
The underwriting process can take anywhere from a few days to a few weeks, depending on how difficult the verification process ends up being. To learn more, contact a mortgage company.