MLO Timeline

Question 1

Credit Score

Answer 1

Calculated by using a person’s credit report to determine the likelihood of a loan being repaid on time. A lower score means a person is a higher risk, while a higher score means they are less risk.

Question 2

Debt

Answer 2

An amount of money borrowed by one party from another. Debt is used by many corporations and individuals as a method of making large purchases that they could not afford under normal circumstances. A debt arrangement gives the borrowing party permission to borrow money under the condition that it is to be paid back at a later date, usually with interest.

Question 3

Capacity

Answer 3

The ability to make mortgage payments on time, depending on your assets and amount of monthly income after paying housing costs, debts and other obligations.

Question 4

Liquid Asset

Answer 4

A cash asset or an asset that is easily converted into cash, such as stocks or bonds.

Question 5

Security

Answer 5

Property pledged as collateral for a loan.

Question 6

Checking Account

Answer 6

A deposit account held at a financial institution that allows withdrawals and deposits. A checking account differs from other bank account due to its allowance of numerous withdrawals and unlimited deposits, whereas savings accounts sometimes limit both.

Question 7

Divorce

Answer 7

The legal dissolution or ending of a marriage.

Question 8

Down Payment

Answer 8

The portion of a home’s purchase price that is paid in cash up-front and is not a part of the mortgage loan. This amount varies based on the loan type, but is determined by taking the difference of the sale price and the actual mortgage loan amount. A typical down payment is around 10%, but based on the lender’s credit may be anywhere from 0% to 20%.

Question 9

Pre-Approval

Answer 9

Occurs when a lender commits to lend a fixed loan amount to a potential borrower based on a completed loan application, credit reports, debt, and savings, all financial documents and information must also be reviewed by an underwriter. The commitment remains as long as the borrower still meets the initial qualification requirements. A loan is not guaranteed, however, until the property passes inspections and meets underwriting guidelines.

Question 10

Credit Report

Answer 10

A report generated by the credit bureau that contains the borrower’s credit history. Most public items stay on the report for seven years, while other items stay longer, for example, bankruptcies stay for 10 years. Lenders use this information to determine if a loan will be granted.

Question 11

“Intent to Proceed”

Answer 11

It is a disclosure that a borrower must sign in order to continue the pre-approval process. After this is signed the MLO can release a pre-approval letter to the borrower. You are agreeing to the loan terms and conditions and plan to moving forward with the loan if everything gets approved.

Question 12

Asking Price

Answer 12

The price a home is listed on the market by the seller.

Question 13

Credit Card

Answer 13

A card issued by a financial company given the holder an option to borrow funds, usually at a point of sale. Credit cards charge interest and are primarily used for short-term lending.

Question 14

Gross Income

Answer 14

Money earned before taxes and other deductions. This may include income from self-employment, rental property, alimony, child support, public assistance payments, and retirement benefits.

Question 15

Principal

Answer 15

The amount of money borrowed to buy a house or the amount of the loan that has not been paid back to the lender. Principal does not include the interest charged to borrow that money. The principal balance is the amount owed on a loan at any given time. It equals the original loan amount minus all repayments made on principal.

Question 16

Interest

Answer 16

A fee charged for borrowed money.

Question 17

Property Tax

Answer 17

A tax charged by local government and used to fund municipal services, such as schools, police, or street maintenance. Local governments use a formula, usually based on a percent per $1000 of the assessed value of a property, to determine the tax amount.

Question 18

Insurance

Answer 18

Protection against a specific loss, such as fire and wind, over a specified period of time. This is secured by the payment of a regularly scheduled premium.

Question 19

Homeowners Insurace

Answer 19

An insurance policy that protects a dwelling and its contents against damage. It covers fire, storms, or other damages with protection against claims of negligence or inappropriate action that result in someone’s injury or property damage. Most lenders require homeowners insurance and may escrow the cost. Flood insurance is generally not included in standard policies and must be purchased separately. Homeowners insurance may be used interchangeably with the term “hazard insurance”.

Question 20

Disclosures

Answer 20

The release of relevant information about a property that may influence the final sale, especially if it represents defects or problems. The information is also relative to the terms of the credit extended by the lender. “Full disclosure” usually refer to the responsibility of the seller to voluntarily provide all known information about the property. Some disclosures may be required by law, such as the federal requirement to warn of potential lead-based paint hazards in pre-1978 housing. A seller found to have knowingly lies about a defect might face legal penalties.

Question 21

Loan Estimate

Answer 21

A disclosure that helps applicants of forward closed end mortgages comprehend the expense, risk and characteristic of the specified loan for which they are applying.

Question 22

Offer

Answer 22

A potential buyer’s indication of his willingness to purchase a home at a specified price; it is generally expressed in writing.

Question 23

Contract

Answer 23

A written or spoken agreement between two or more parties. A mortgage is an example.

Question 24

Underwriting

Answer 24

The process of analyzing a loan application to determine the amount of risk involved in making the loan. It includes a review of the potential borrower’s credit history and a judgement of the property value.

Question 25

Purchase Loan

Answer 25

A mortgage issued to the borrower by the seller of the home as a part of the purchase transaction.

Question 26

Co-Borrower

Answer 26

An additional person who’s listed on the title and is also responsible for loan repayment.

Question 27

Closing

Answer 27

The day by which all documents relating to the mortgage banking loan or mortgage loan have been executed and recorded, and all monies have been accounted for. Also known as “settlement”.

Question 28

Lien

Answer 28

A legal claim of money against a property that uses the value of a property as security in a borrower’s repayment of debt and requires that full repayment be made when the property is sold. Examples include a mechanic’s lien (for the unpaid costs of building supplies) or a tax lien (for unpaid property taxes). A lien is a defect on the title and needs to be settled before transfer of ownership. A lien release is a written report of the settlement of a lien and is recorded in the public record as evidence of payment.

Question 29

Closing Disclosure

Answer 29

This gives the consumer an explanation of all the costs associated with their loan. It must be delivered 3 business days before consummation or all forward closed end mortgages.

Question 30

Escrow

Answer 30

Funds held in an account to be used by the lender to pay for home insurance and property taxes. The funds may also be held by a third-party and disbursed once contractual conditions are met. Securities, funds and other assets can be held in escrow.

Question 31

Closing Agent

Answer 31

A third-party that performs loan closings on behalf of the lender. The title company typically acts as the closing agent, however, in some states an attorney is required to act as the closing agent.

Question 32

Filing

Answer 32

The process of submitting documents as a matter of legal record.

Question 33

Notary

Answer 33

An individual authorized to perform certain legal formalities. For example, this individual may draw up or certify contracts, deeds and other documents. they will be used to certify documents at loan closing.

Question 34

Servicing

Answer 34

The collection of payment for as well as administration and management of a mortgage loan.

Question 35

Amortize (Amortization)

Answer 35

Periodic payments on a loan requiring payment of enough principal and interest to ensure complete repayment of the loan by the end of the loan term. As payments continue more money is allocated to the principal and less to interest and the total owed on the loan decreases.

Question 36

Loan Term

Answer 36

The period of time that a loan takes to mature. Applies to only closed-end mortgages.

Question 37

Negative Amortization

Answer 37

Occurs when a borrower’s monthly payments do not cover all of the monthly interest cost. The non-covered interest cost is added to the unpaid principal balance. Even after making many payments, a borrower could still owe more on a loan than he did initially, because of interest and any other fees.

Question 38

Reverse Mortgage or Home Equity Conversion Mortgage (HECM)

Answer 38

This type of mortgage is used by senior homeowners (aged 62+) to convert the equity in their home into monthly streams of income and/or a line of credit to be repaid when they no longer occupy the home. A lending institution such as a mortgage lender, bank, credit union, or savings and loan association funds the loan, which the FHA insures.