6.3: Mortgage Application Process

Front

What is the mortgage application process?

Back

The mortgage application process involves several steps including pre-approval, submitting a loan application, providing necessary documentation, underwriting, and closing.

Front

Define 'back-end ratio' in mortgage applications.

Back

The back-end ratio is a measure of a borrower's total monthly debt payments divided by their gross monthly income, expressed as a percentage. It helps lenders assess a borrower's ability to manage monthly payments.

Front

How do you calculate the back-end ratio?

Back

To calculate the back-end ratio, add all monthly debt payments (including mortgage, taxes, insurance, and other debts) and divide by the gross monthly income, then multiply by 100.

Front

What is the front-end ratio in mortgage applications?

Back

The front-end ratio is the percentage of a borrower's gross monthly income that goes towards housing costs, including mortgage payments, property taxes, and homeowners insurance.

Front

How do you calculate the front-end ratio?

Back

To calculate the front-end ratio, divide the total monthly housing costs by the gross monthly income and multiply by 100.

Front

What is a down payment in the context of buying a home?

Back

A down payment is the initial upfront payment made when purchasing a home, typically expressed as a percentage of the purchase price.

Front

What is APR in mortgage loans?

Back

APR (Annual Percentage Rate) represents the yearly cost of borrowing, including interest and fees, expressed as a percentage.

Front

What is the significance of the loan term in a mortgage?

Back

The loan term is the length of time over which the loan must be repaid. Common terms are 15, 20, or 30 years, affecting monthly payments and total interest paid.

Front

What does it mean to 'amortize' a loan?

Back

To amortize a loan means to gradually pay off the debt over time through regular payments that cover both principal and interest.

Front

What is the difference between fixed-rate and adjustable-rate mortgages?

Back

A fixed-rate mortgage has a constant interest rate throughout the loan term, while an adjustable-rate mortgage has an interest rate that may change periodically based on market conditions.