So you’re looking for a home loan? Before you find yourself up to your knees in brand new terminology, brush up on these common phrases:
FICO score
These are the credit scores that the majority of lenders use to determine your credit risk, and the number makes a very big difference in terms of what interest rates you are offered on a mortgage. This score boils your credit history down to a three-digit number that tells a lender whether you’re creditworthy. What is the FICO score based on? The biggest players are past payment history and outstanding debt. The average FICO score falls between 600 and 800, the median being 723.
Full documented loan
A full documented loan means that both income and assets are disclosed and verified. Income is used in determining the applicant’s ability to repay the mortgage and formal verification requires the borrower’s employer to verify employment.
APR
This stands for Annual Percentage Rate. It’s a calculation that measures the net effective cost of borrowing. It takes into account some costs of getting the loan (including any applicable points), most loan fees and mortgage insurance. The APR is the most consistent means of determining price disparities between lenders.
Good Faith Estimate
This is a list of settlement charges that will occur with your new loan. Within three business days of receiving the loan application, the lender is obliged to provide the good faith estimate to the borrower. The good faith estimate gives the borrower the opportunity to review associated costs on the loan before proceeding.
