MLO School

Mortgage Terminology and Concepts

Key Terms and Definitions

  • APR (Annual Percentage Rate)

    • Definition: The annual cost of borrowing expressed as a percentage. It includes the interest rate as well as any other costs or fees associated with a loan.

  • Backend Ratio

    • Definition: A ratio that determines the availability of income plus any long-term debt towards housing affordability.

    • Alternate Names: Total debt ratio, back ratio, bottom ratio.

  • CLTV (Cumulative Loan to Value)

    • Definition: This ratio includes all loans secured by a property, measuring the total amount of all loans compared to the appraised value of the property.

    • Application: Useful for determining the equity available in a property when there are multiple loans.

  • Discount Point

    • Definition: A fee typically equal to 1% of the total amount being loaned, paid upfront to reduce the interest rate on a mortgage.

  • DTI (Debt to Income)

    • Definition: A financial ratio showing the amount of debt a person has relative to their income.

    • Importance: A lower DTI ratio is generally better, indicating a healthier balance between income and debt obligations.

  • Equity

    • Definition: The value of a property remaining after subtracting the total amount owed on any loans.

    • Importance: Represents the owner's wealth in the property and can be tapped into for loans or refinancing.

  • Frontend Ratio

    • Definition: A ratio that assesses the availability of income for housing-related expenses only.

    • Alternate Names: Housing ratio, front ratio, top ratio.

  • LTV (Loan to Value)

    • Definition: A financial term that compares the amount of the mortgage loan to the appraised value of the property.

    • Formula: LTV=racextLoanAmountextAppraisedValueLTV = rac{ ext{Loan Amount}}{ ext{Appraised Value}}.

    • Significance: High LTV ratios can indicate higher risk for lenders.

Roles in the Mortgage Industry

  • Mortgage Banker

    • Definition: An individual who originates loans for a federally chartered financial institution.

    • Licensing: Registered with the Nationwide Mortgage Licensing System (NMLS) but does not require a separate license.

  • Mortgage Broker

    • Definition: A person who originates loans for their own company.

    • Licensing: Must be licensed by the state or states in which they operate.

  • Mortgage Loan Originator (MLO)

    • Definition: An individual who works under a broker or company and originates loans.

    • Licensing: Must be licensed in the state or states where they conduct business.

Regulatory Systems

  • NMLS (Nationwide Mortgage Licensing System)

    • Definition: A database and regulatory body that oversees and maintains licensing for mortgage professionals in the United States.

  • NMLS & R

    • Clarification: The full form refers to the Nationwide Mortgage Licensing System and Registry.

    • Note: Common confusion with the term "National MLS"; the correct name is "Nationwide MLS."

Components of Mortgage Payments

  • PITI (Principal, Interest, Taxes, and Insurance)

    • Definition: The four main components that comprise most mortgage payments.

    • Principal: The amount borrowed that must be repaid.

    • Interest: The cost of borrowing the principal amount, expressed as an annual rate.

    • Taxes: Property taxes that must be paid on the property.

    • Insurance: Homeowner's insurance and, in some cases, mortgage insurance.