What is my Loan Officer talking about?
As in most industries, Loan Officers and Lenders have their own way of speaking in shortened terms and abreviations that can be a little confusing for clients who aren't in mortgages day in and day out. Here are a few terms that you may see Loan Officers say or write sometimes and what they mean:
|Abreviation||Full Meaning||What It Means|
|Form 1003, Loan Application||
The standard loan application form that the government required to be filled out when you start the mortgage process with your loan officer. This form collects information that regulators and loan officers can use to keep a finger on the pulse of the mortgage industry.
|4506 T||IRS Form 4506T||A form that authorizes your lender to request transcripts of your tax returns directly from the IRS. The lenders use this to verify your income and that there are no taxes outstanding, especially if you are self-employed.|
|APR||Annual Percentage Rate||
A broader measure of the cost of a mortgage because it includes the interest rate plus other costs such as broker fees, discount points and some closing costs.
|ARM||Adjustable Rate Mortgage||
A mortgage whose rate changes on a set schedule with how rates are performing in the economy, usually after an initial period of a 1-10 years.
|AUS||Automated Underwriting System||A complex program that loan officers and underwriters use to analyze your application data and compare it against set guidelines and government regulations to ensure that you are still eligible for the program you are applying for as data is updated.|
|BK 7 or 13||Bankruptcy (Chapter 7 or 13)||A legal action that can provide relief when someone's financial situation is too much for them to reasonably take on without some assistance.|
|BPS (bips)||Basis Points||
1 basis point is equal to 1/10,000 of your loan amount (one hudredth of one percent). This is a measure that lenders use to calculate the dollar amount of your lender credit or what they will charge you as a cost for each rate that is available. The lender will likely never give you both a credit and a cost for the same rate.
If you are looking for a mortgage of $200,000 and your loan officer says the lender will give you a rate of 4.5% with a credit of 30 bps, that means that as an incentive to choose a higher rate they will give you a credit of $200,000 x (30/10,000) or $600 towards your closing costs and you will need to bring in that much less money to closing.
|BSA||Borrower Signature Authorization||A document that allows the loan officer to request documentation and updates to documentation related to your mortgage.|
|CD||Closing Disclosure||A dislclosure similar to a Loan Estimate, but it can break out who is paying the closing costs and what you have paid already towards your loan.|
|COC||Change of Circumstance||When something changes with your loan (rate, sales price, down payment amount etc.) the loan officer is required to submit a form to the lender who will investigate the requested change and accept or deny it. If the change is accepted, you will get a new set of disclosures reflecting the change.|
|COE||Certificate of Eligibility||A document issued by the VA that shows how much a borrower who has served in the military is eligible for in monetary assistance from the government when applying for a mortgage.|
|Credits||Lender Credits||The amount of money that the lender will give you as a credit towards your closing costs. This is an incentive of chosing a higher rate and is the opposite of discount points.|
|CTC||Cleared to Close||Congratulations! The lender has made the final decision that they will give you the funds to set you up in your new mortgage! At this point, you should be able to set up a time to close your loan with your title agent.|
|DPA||Down Payment Assistance||A program that can help provide you with the required a down payment on a house you are looking to buy in the form of a grant or other special arrangement. These are available on a local and national scale.|
|DTI||Debt to Income Ratio||Monthly liabilities divided by monthly income. The liabilities that we cound do not include things like utilities, groceries or dining out. We only include things that are showing up on your credit report or you are legally obligated to pay (child support/alimony etc.). In order to qualify for most mortgages, your loan officer will be trying to keep this under a certain percentage so that the lender can be sure that you are able to repay your mortgage, even if something happens.|
|DU||Desktop Underwriter||Fannie Mae's Automated Underwriting System (AUS)|
|EMD||Earnest Money Deposit||The amount of money that you and the seller of the home you want to buy agree that you will put down in advance of your closing. This money shows the seller you are serious and that you are willing to put a little skin in the game to prove it.|
|EOI or HOI||Homeowners Insurance||An insurance policy you take out on your home to make sure that both you and your lender are protected in case something happens to your house.|
|Escrow||Escrow accounts||An account set up by the lender to help you set money aside to pay for your yearly taxes and property insurance. Every month you make your payment, a small amount of that money goes into a seperate account so that the lender can make those payments for you! This way, you can make one monthly payment and not have to worry about saving up for these items on your own. What a relief!|
|Fannie||Fannie Mae||A government sponsored company that acts as an intermediary between your lender and government money. Once your loan closes, Fannie Mae or Freddie Mac will purchase certain types of loans that have passed their criteria and bundle them into packages that can be held long-term. This makes it so that the lender can free up their funds to help more people to get mortgages.|
|Freddie||Freddie Mac||A government sponsored company that acts as an intermediary between your lender and government money. Once your loan closes, Fannie Mae or Freddie Mac will purchase certain types of loans that have passed their criteria and bundle them into packages that can be held long-term. This makes it so that the lender can free up their funds to help more people to get mortgages.|
|HELOC||Home Equity Line of Credit||A line of credit that you can use to turn some of the equity in your house into liquid assets for any number of reasons like home improvements or paying off debts.|
|LE||Loan Estimate||One of the first documents that you will see from your loan officer that breaks down the specifics of the loan they believe is right for you. In this document, you will see closing costs, loan amount, interest rate, monthly payment and a lot of other information you can use to understand the specifics of your loan. Don't be worried if your loan estimate is a little off, the numbers on the loan estimate can change quite a bit over the course of your transaction.|
|LOE or LOX||Letter of Explanation||A basic letter that the underwriter needs to get more information on something that they cannot find the answer to without talking to you about. They often ask for letters on things like addresses they find that are related to your name or different spellings of your name.|
|LP||Loan Prospector||Freddie Mac's Automated Underwriting System (AUS)|
|LTV||Loan to Value||Loan amount/value of house. This ratio is used as one factor to determine how much your loan will cost and how much you can borrow. The lower the better in most cases.|
|MI||Mortgage Insurance||Just like you pay car or home insurance, mortgage insurance is an additional insurance that the lender requires that loans with higher risk have (conventional loans with a LTV of 80% or higher, or all FHA loans). Mortgage insurance is not always a bad thing. Your loan officer can help you look through options to see if a loan with mortgage insurance will be a good fit for you.|
|Points||Discount points||The amount a lender will charge you for an interest rate that is lower. This is the opposite of a lender credit.|
|Processor||Loan Processor (Person)||An additional team member that works with or for your loan officer. It is their responsibility to make sure your loan stays organized and that the lender receives everything they need to approve your loan in a timely manner. Loan processors can work for companies that aren't the same as your loan officer, so don't be surprised if your processor's email shows they are from a different company.|
|Title||Title Company or Title Agent||An company independent of the lender or loan officer who helps to make sure all the loose ends of your mortgage are tied up with the state. They make sure that your old mortgage is paid off if you are refinancing, your new lender is listed on county recording documents and your name is on title among a ton of other things. They are often the last people you will see to close your mortgage.|
|UW||Underwriter/Underwriting||A representative of your new lender who takes an in depth look at your documents and compares them against a specific set of guidelines to make sure that you are in a stable enough financial situation to be able to comfortable make the new mortgage payment alongside any other liabilities you still have. They also ensure that the company they work for can transfer the mortgage on to another institution after it closes without any problems.|
|VOE||Verification of Employment||Just a lender verifying with your employer that you are still employed by them. Can be done in writing or over the phone, sometimes both. Verbal ones happen on every loan but written ones can be requested if there are some additional questions like when you started or what your commission structure is.|