MORTGAGE BASICS Study Guide

Comprehensive vocabulary flashcards covering the mortgage process timeline, industry terms, loan structures, and FHA regulation specifics.

Prospect

An interested buyer who has not yet submitted a loan application.

1003

The standard industry form name for the official mortgage application.

Needs List

A collection of income documents, IDs, bank statements, tax returns, and other required items to process a loan.

Pre-Qualified

A status indicating a basic initial review shows the borrower likely qualifies for a loan.

Pre-Approved

A status where income, assets, and credit are fully reviewed, and the borrower is ready to shop for a home.

Under Contract

The stage where a purchase offer is formally accepted on a home.

Processing

The mortgage stage involving appraisal ordering, title search, disclosures, and employment verification.

Underwriting

Stage where the underwriter thoroughly reviews the completed loan file for approval.

Conditional Approval

Status where the loan is approved as long as specific requested outstanding conditions are met.

Clear to Close

Status when everything is fully approved and conditions are satisfied.

Closing

The stage where the buyer signs the final mortgage and legal paperwork.

Funded

The point when the loan officially closes and the money is disbursed to appropriate parties.

$2$-Year History

The minimum consistent employment and income history duration typically required by lenders.

LTV (Loan-to-Value)

Calculated as $\text{Loan Amount} \div \text{Home Value} = LTV\%$. A higher percentage translates to a smaller required down payment.

AMC (Appraisal Management Company)

An independent entity that manages and hires the property appraiser to ensure neutrality.

Escrow

A specialized holding account used to collect and pay monthly property taxes and homeowners insurance.

SFR

Single Family Residence.

ARM

Adjustable Rate Mortgage (a mortgage where the interest rate can change periodically).

Lock Period

The standard timeframe an interest rate is guaranteed for a borrower, typically $30$ days.

Loan Term

The length of the loan; a $30$-year term is considered the standard framework.

LLPA

Loan-Level Pricing Adjustment; risk-based fee adjustments made by lenders based on borrower attributes like credit score and LTV.

PITI

The four components of a standard monthly mortgage payment: Principal, Interest, Taxes, and Insurance.

Spousal Requirement

A regulation for government-backed loans (FHA, VA, and USDA) requiring a legal spouse to be included on the loan application.

Lender-Paid Costs

Costs covered by the lender, which happens approximately $95\%$ of the time.

Seller Concession (FHA)

The maximum percentage limit a seller can contribute toward a buyer's closing costs for FHA loans is $6\%$.

Seller Concession (Conventional)

The maximum percentage limits a seller can contribute are $3\%$, $6\%$, or $9\%$, varying by down payment size.

Seller Concession (VA)

The maximum percentage limit a seller can contribute is $4\%$ plus certain allowable costs.

Seller Concession (USDA)

The maximum percentage limit a seller can contribute toward a buyer's closing costs is $6\%$.

$$203(b)$$

The standard FHA loan option for purchasing move-in-ready (basic) homes.

$203(k)$ Limited

An FHA loan designed for small, non-structural cosmetic repairs.

$203(k)$ Standard

An FHA loan designed for major renovations, rehabilitation, and structural repairs (fixer-upper).

Commission Calculation (Example)

Based on a purchase price of $\$340,000$ and a commission rate of $2\%$, the amount is $\$340,000 \times 0.02 = \$6,800$.

Total Base Transaction Costs (Example)

The sum of commission ($\$6,800$) and fixed fees ($\$1,000$), totaling $\$7,800$.