The Weird Words of Mortgages, pt. 1
Q. WHAT IS PMI? WHY ARE THEY FORCING IT ON ME?
A. Private Mortgage Insurance. It protects the lender against a loss if a borrower defaults. If you are financing more than 80% of the home’s value, then you will incur PMI. For conventional loan programs, once the loan is at 78% of the value of the home, then you are entitled to getting it dropped off of your monthly payment.
Q. I HEARD MY LOAN IS A MANUAL UNDERWRITE. WHAT DOES THAT MEAN?
A. A manual underwrite is the process of assessing the financial risk of a mortgage approval based on an unfavorable AUS (automated underwriting system) decision. Basically, the algorithm that determines risk said “Let’s take a closer look, preferably with human eyes.” This generally means more questions asked along with more paper proofs requested.
Q. WHAT IS AUS?
A. A computer-generated loan underwriting decision. It uses your complete loan application and retrieves relevant data, such as your credit history, and arrives at a logic based loan decision.
Q. WHAT IS AN ESCROW?
A. The portion of the mortgage payment that is set aside in a specially designated account that will pay for taxes and insurance. It’s placed in an escrow account to show that the money is guaranteed to be there when the bills come due on an annual basis, and is an amount over the monthly principal and interest payment.
Q. WHAT IS NON-TRADITIONAL CREDIT?
A. This is for borrowers who do not meet the minimum credit reporting history. For most loan programs, this means no credit score. For USDA this means fewer than 2 total trade lines (with or without a balance) that have reported for a minimum of 12 months. In this case, we are able to establish non-traditional credit by getting a landlord contact and a few utility bills (gas, power, cell phone, insurance, water, internet) that have been in existence for a minimum of 12 months. We then send this information to our credit provider, and they call each creditor and provide a 12 month payment history to establish a credit profile.
Q. WHAT IS AN ARM?
A. An Adjustable Rate Mortgage— this is a mortgage in which the interest rate fluctuates to adjust for market conditions.
Q. WHAT IS DPA AND HOW DO I KNOW IF I AM ELIGIBLE?
A. Down Payment Assistance. Generally for first time homebuyers; Google NC Down Payment Assistance Programs to find what might be available in your area. Be sure to read what qualifications/restrictions are in place/required.