Gross income is the amount that is used in qualifing for a mortgage loan.

Gross monthly income is the total of all income written on the 1003 loan application. The total is calculated from base pay, additional wages including commissions, bonuses, and second jobs.

Verification of Deposit - Mortgage Lenders require proof that funds are in the account that was stated by the Borrower. This is accomplished by the lender sending a written request for verification. However, a copy of your most recent statement of the account will suffice.

Many times online bank statements are accepted by Lenders as long as the bank printout includes your name, account number, Bank name and the date the report is good thru. Your Loan Officer will let you know how many months are needed for Loan Processing.

Online Bank Statements sometimes are accepted by a Lender. Keeping 12 Months of Banks Statements on Hand is usually a very good idea especially if you are self-employed. Remember to keep these documents in a secure locked area. Contact a Mortgage Professional to find out which lenders accept online bank statements and which will not.

Prepaid items - Recurring costs such as taxes, insurance and interest that are paid at closing and which cannot be financed.

Two Types of Costs associated with your loan are Non-Recurring and Recurring Costs. These are usually found on your Good Faith Estimate at the day of signing. Non-Recurring Closing Costs not associated with the Lender such as: Closing Escrow/ Settlement Fee, Title Insurance, Notary Fees, Recording Fees, Pest Inspection, Home Warranty, Courier Fee, Homeowner’s Association Transfer Fee. Recurring closing costs are items you pay time and again over the course of home ownership, such as property taxes and homeowner’s insurance. Please contact a Mortgage Professional in regards to which lenders will actually place these costs into your Loan or make the Seller pay for them if you are buying a new property.

Prepaid items include interest from the day of closing thru the end of the month that the loan closes, first year homeowners insurance policy and If applicable escrow reserves for the insurance and property taxes.

Prime Rate - The Prime Rate is the interest rate charged by banks for short-term loans to their most creditowrthy customers. It is also used by lenders as an index for equity lines of credit (ELOCs) in addition to other floating rate loans. Each bank sets their own Prime Rate as they see fit. The Wall Street Journal publishes the Prime Rate that is the base rate on corporate loans posted by atleast 75% of the nations largest banks.

If Alan Greenspan and the Federal Reserve raise the short term interest rates by 25%, you will see a 25% increase in the Prime Rate.

A rate index which is the prevailing rate that banks charge to lend money to corporations.

escrow - Escrow is the collection, holding and delivery of documents and monies by a neutral third party in accordance with the dated, written instructions from principals to a transaction.

Having a neutral third party allows all of the principals to a transaction to handle the transaction in more convenient time frame. Many real estate sales and refinances handled in other areas of the country do not have escrow. It is then necessary for all the parties to be in one room at one time in order to protect their interest. With an escrow, however, the parties may execute their respective documents and instruct the Escrow when the documents may be used.

The Escrow becomes a central depository. Escrow agents are neutral. With the exception of certain statutes which require them to take specific actions, the Escrow Officers simply follow the directions of the principals to the transaction – the buyer, borrower and seller. Escrow Officers do not give legal advice. They do not determine if transactions is “wise”. They do not resolve disputes between the various parties. They simply follow the instructions of the principals: which instructions MUST be consistent (all parties must agree to the same instructions).

Pre-approval - Getting a pre-approval means that the lender has verified your income, assets, debt and credit. The pre-approval is much more accurate than a pre-qualification when it comes to what you can afford.

Preapproval will determine the maximum you can spend on a house before you shop, so you know what price range to target. Many shoppers aim too high, bidding on a home that they later learn is beyond their means because of unforeseen debts or other financial factors. Preapproved buyers can rush the closing if the seller is in a hurry to deal plus gives buyers bargaining power.

A loan Pre-approval is generally more in depth than a loan Pre-Qualification. A Pre-Qual is a mere chat with a loan officer, whereas the loan Pre-approval process involves a more thorough investigation of the borrower's buying power. The Pre-approval process takes longer and involves actual documentations of the borrower's credit history, income and employment, bank statements, and other pertinent financial information.

People interested in buying a house can often approach a lender, who will check their credit and verify their income, and then can guarantee they would be able to get a loan up to a certain amount. The people can then take a letter of pre approval from the lender, and when shopping for a home can have possibly an advantage over others because they can show the seller that they are guaranteed to be able to buy the house.

A Pre-Approval is by far superior to merely being Pre-Qualified. Pre-qualifying is only an opinion based on unsubstantiated information provided by the borrower to the loan originator. A Pre-approval is more indepth and detailed. Normally a credit report is pulled and records of bank accounts and income, as well as W-2's are collected.

Pre-Approval
Signed or Unsigned 1003 (1003 is your Mortgage Application that you signed or the loan consultant asked you the verifiable question on the Application)
Tri-Merge Report
Financial Documents that you sent to the Loan Consultant

Once all documents are received the Loan Consultant will fax all information over to the Bank of your/his/her choice and the Underwriter of the Bank will do a quick review of the documentation received and than determine how much you will qualify for and at what interest rates you will obtain. They will than fax over a Pre-Approval with the banks name on header stating that you have been Pre-Approved from such amount and such interest rate based on the information provided. At that time as well they will also send the loan consultant a list of additional documentation for him/her to retrieve to begin the loan process. This is usually good for 30 days since rates vary monthly.

Today many lenders offer an automated pre-approval or loan commitment online through authorized brokers. This speeds up the process by allowing their computer system to analyze the borrowers credit and income details before a human underwriter actually looks at the paperwork. This method also allows loan officers to get pre-approval from a lender within 24 hours of the borrower applying for a mortgage loan.

Nonconforming Loan - Also called a jumbo loan. Conventional home mortgages not eligible for sale and delivery to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because of various reasons, including loan amount, loan characteristics or underwriting guidelines. Nonconforming loans usually incur a rate and origination fee premium.

With the emergence of new lenders and programs to the mortgage market on a weekly basis there is a loan program for just about anyone whether conforming or non-conforming. Just check with you online Mortgage Professional to see what you qualify for.

Conforming loan limits will adjust to $400,000 in most states in December.

A Non-conforming loan simply means a loan that is outside of the standard guidelines set by Fannie Mae and Freddie Mac (the two government-sponsored enterprises that insure loans on the secondary mortgage market). Non-conforming loans have no set guidelines and vary widely from lender to lender. But most often non-conforming loans are mortgages that have larger loan balances, require less documentation, and have flexible credit score requirements. These loans carry an additional risk to the lender and as such the rates are higher.

Non-conforming loans have less stringent rules on fees that can apply to your loan, so review the details carefully.

The demand for nonconforming loans is gaining strength at just about the right time. Its growing presence is throwing lifelines to a record number of perplexed homeowners facing higher sales prices or stiff documentation requirements.

Non conforming loans has strict loan-to-value guidelines.

Conforming loans are available now with Stated Income, Stated Assets or "SIVA"

Jumbo loans are one type of non-conforming loans, due to the loan amounts exceeding the maximum limits adopted by FNMA and FHLMC. Besides exceeding the loan amount limits, loans can be non-conforming for other reasons, such as the borrower's credit profile, income/employment situations, cash reserves, property type, etc.

Non-conforming loans typically have a higher rate and different requirements for your down payment.

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.

The APR of a 30 year fixed rate loan, will be different than the APR of a 15 year fixed rate loan. Also, ask for the Good Faith Estimate (GFE), to compare the different costs associated with your loan. APR is just one factor in determining which loan is best for you.

Remember that your APR DOES NOT affect your monthly mortgage payments. Your monthly payments are based on the interest rate, and the length of the loan.

The APR is also defined as the cost of credit to the borrower in relation to the amount borrowed expressed as a yearly rate. This is required by the federal Truth in Lending Act, Regulation Z.

The APR is found on the Truth In Lending, a disclosure form that is required by law to be given to potential borrowers. Because the APR takes into considerations all the bank fees a lender charges, it is a good tool to compare different loan offers. For instance, one bank offers a borrower a mortgage loan with an interest rate of 6.25% with 1 discount point (meaning the borrower pays the bank 1% of the loan amount at closing in order to get the 6.25% interest rate), and another offers a loan with 6.5% interest rate and 0 point, how would the borrower know which to choose? Without consideration to the borrower's financial situation such as his cash reserves and how long he intends to live at the property, the loan with the lower APR is the better choice.

In other words the APR is the TRUE cost of the loan.

A good tool to compare loans across different lenders is the Annual Percentage Rate (APR). The Federal Truth in Lending law requires mortgage companies to disclose the APR when they advertise a rate. It is designed to represent the true cost of the loan to the borrower, expressed in the form of a yearly rate. The purpose is to prevent lenders from hiding fees and upfront costs behind low advertised interest rates

For an adjustable-rate loan, the APR assumes the loan's index doesn't change from its initial value.

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

Title companies provide title insurance to buyers, sellers, lenders and developers, essentially anyone who has an interest in real estate. Services vary throughout the country, depending on local practices and laws. In many states, title companies handle escrow as well as perform and insure title searches. A title search involves searching public records to ascertain if the seller has the legal right to sell the property. In other states, attorneys conduct title searches.

Considering what is at stake, purchasing title insurance is very important. It protects the homeowner, for as long as he owns the property, and the lender against any title defects that may arise. If the homeowner's legal ownership of the property is challenged, the title insurance company will defend the homeowner in court, and if loses, will reimburse the homeowner and the lender. Just as hazard insurance, all lenders require their borrowers to purchase title insurance to protect their interests.

In a refinance, the homeowner must re-purchase title insurance. Depending on the length of time between the two home finances, the homeowner may be entitled to a deep discount in premium.

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.

As far as underwriters are concerned, the Back DTI (total monthly obligations divided by total monthly income) carries more weight than the Front DTI (monthly housing expenses divided by total monthly income). In fact, some lender banks have disregarded the Front Debt-to-Income ratio altogether and look only at the Back DTI.

Although many lenders have programs that allow up to a 55% debt to income ratios, it is not always in the best route to take. The borrower should consider what his or her potential for an increase or decrease in income could be over several years. Discussing your short and long term goals with your mortgage broker will allow them to find a loan program that is in your best interest.

Debt to Income Ratio

Your debt to income ratio is simply a way of determining how much money is available for your monthly mortgage payment after all your other recurring debt obligations are met.

Debt limit

There is generally a debt limit associated with each type of loan, such as a 28/36 qualifying ratio for a conventional loan. These qualifying ratios are guidelines. An excellent credit history can help you qualify for a mortgage loan even if your debt load is over and above the limit.

Understanding the qualifying ratio

Typically conventional loans have a qualifying ratio of 28/36. Usually an FHA loan will allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.

The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be applied to housing (including loan principal and interest, private mortgage insurance, hazard insurance, property taxes and homeowner's association dues).

The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt. Recurring debt includes things like car loans, child support and monthly credit card payments.

For example:

With a 28/36 qualifying ratio:

Gross monthly income of $3,500 x .28 = $980 can be applied to housing
Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses

With a 29/41 qualifying ratio:

Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
Simply guidelines

Remember these are just guidelines. We’d be happy to pre-qualify you to determine how large a mortgage loan you can afford. We look forward to helping you buy your dream home.

This ratio, also known as "DTI", is very important in the eyes of each Lender. Some lenders will allow your DTI to be as high as 55% making it even easier to qualify for a mortgage.