A recent study of US and UK home buyers, conducted by the London based Nationwide Building Society, found that more than 40% of people buying homes were confused by the jargon that lenders used to describe mortgages. Saying “more than 40%” seems like an understatement.
According to another study, only 31% of homebuyers understood what the term “LTV” meant, an acronym that stands for “loan to value” and describes the ration between the amount of the mortgage and the value of the home. Not only did the survey show that many mortgage borrowers were confused about what the terms meant, but they also were shy about asking for explanations of words that they didn’t understand. It's just like in school when the teacher asks if anyone has questions and no one says a word, but you're dying to know all the questions in your head!
In order to make a wise financial decision and choose the right mortgage for you, it is essential to do your research and understand exactly what you are signing up for. If you are unsure of what a mortgage term means, don’t be afraid to ask your lender for qualification. Everyone knows the saying about the word ‘assume.’
It’s All About the Lingo and Acronyms!
Adjustable Rate Mortgage
This is a loan that has an interest rate which will fluctuate over time, such as every three years or every year after the first five years. This type of mortgage can be advantageous if you plan to sell the home within the first few years of owning it. Another option is a fixed rate mortgage, which does not fluctuate.
This is a calculation that your mortgage lender will make in order to determine the largest mortgage that you could possibly afford to obtain. The calculation is made by looking at your income, your existing debt and other factors.
Stips Or Stipulations
If your mortgage lender mentions “stips” they are probably talking about stipulations, which are the requirements that are submitted in order to clear your mortgage to close. This includes verifications of your bank statement as well as proof of employment and rent. Verification of Rent and Verification of Employment are often abbreviated as VOR and VOE.
This refers to the US Department Of Housing Development Settlement Statementthat you will be required to sign when taking out a mortgage. This document contains the details of the arrangement, including all fees agreed upon.
These are just a few examples of mortgage jargon that you might not be familiar with. If you have any more questions about taking out a mortgage on a home, contact me at email or 718.370.3200 for more info.