Just as we promised you last week, Palm State Mortgage Company now brings you Part Two of your Palm State Mortgage Language Primer. We are aware that some of the acronyms involved in finance can be confusing, especially for a first time home buyer.
Just for fun, let’s take a quick look at our case study of the day, Mr. Adam Sloane, first time home buyer, as he attempts to communicate with his new mortgage broker, Mr. Broker Brand X.
The Short, Unhappy Story of Mr. Sloane and Mr. Broker Brand X: A Language Primer Parable
(You are about to see why we think you might enjoy a primer on mortgage language!) We peek in on Mr. Adam Sloane and Mr. Broker Brand X, on a sunny Orlando morning as Mr. Broker Brand X peruses and re-shuffles papers related to Mr. Sloane’s financial history.
Mr. Sloane: Do you have any loan purchasing advice for me at this point?
Mr. Brand Broker X: Well, now, you might be interested in a HELOC, but given that you are shortly coming into your inheritance, IO might be available. In that case, understand, we would certainly need LOX and your monthly MIP might be high. So you might want to pay P&I anyway, and I would need a special POC fee, like your appraiser. Naturally, we are going to do everything possible to comply with RESPA.” (Acronym Score: 7 “words” for our primer! Not so good, in our opinion! )
Mr. Sloane: (His eyebrows have been raised higher with every acronym. He blinks his eyelids rapidly.) Really? hmmm. Excuse me. (We hear Mr. Sloane gulp, and see him rise from the chair. He smiles weakly. “It was nice to meet you.” he says, a little hoarsely. We hear the door click softly closed as he exits quickly.)
Palm State Mortgage would advise Mr. Sloane to follow this rule set by advice from Zillow expert Eric Gotsch: “Asking will never be a stupid question, especially during something as important as the home-buying process.”
De-coding and Translating Mr. Broker Brand X’s Comments
As with last week’s Primer, Part I, we invite you to copy and print this blog article for your file, as you explore your mortgage options. The acroynms can help you understand the process and negotiate your way through all the details of your loan. At Palm State Mortgage, we believe
So let’s attempt to translate the baffling information given by the sanguine and arrogant Mr. Broker Brand X. Perhaps we can figure out why Mr. Sloane exited so abruptly.
The HELOC (Home Equity Line of Credit): This is a type of loan that actually functions just like your credit card. You will “draw” against your home equity, as if it were your Visa. Sometimes, this is called a Reverse Mortgage and it has a lot of pros and cons. (Expensive, too!)
IO (Interest Only): This sounds like a dream come true, on the surface of the definition. Because Mr. Sloane was going to come into his trust fund in 2 and half years, he might have been able to pay monthly payments of just interest. This is only workable for a specific period, and only for buyers who have a foreseen reassurance of a positively guaranteed increase in their income.
LOX (Letter of Explanation): This would refer to an official letter to a lender defining the Mr. Sloane’s raise in income. Such a letter might also be provided to a lender that explains any “changes in income, defend late payments, or summarize your rental history.”
MIP (Mortgage Insurance Premium): This term refers to a government fee. It is included in your payment because it is financed as part of your FHA loan. By the way, FHA is a special program permits first-time buyers to put down less than 20% on their purchase. You can do a little reading about different types of FHA loans at this convenient online resource.
P&I (Principal and Interest): This is incredibly simple, and among the jargon words that just might be completely unnecessary. Your P is your Principle, and your I is your Interest, and both are due along with any MIP, every single month.
POC (Paid Outside of Closing): These fees refer to any fees that might need to be paid before your closing on a house. Usually, this indicates appraisal fees or inspection fees. This are paid with your loan application.
Why Mr. Brand X Broker thinks he deserves a special fee is mystifying and more than a little shady.
(Hint: Perhaps that is part of the reason Mr. Sloane walks out on doing business with him.)
RESPA (Real Estate Settlement Procedures Act): These are government requirements that demand you are given certain transparent disclosures and detailed information every step of the way in your mortgage process. Closing costs, settlement costs, and anything about your home mortgage deal procedures, should be explained by your lender. (Hint: A lender can not just strive to comply; a lender must absolutely comply.)
No Encrypted Mortgage Language Here!
Here in Central Florida, Palm State Mortgage maintains a “clear and plain talking” attitude. That’s why information in blog articles like this Mortgage Primer, Pt. I and Pt. II is a priority for us.
If we need to use acronyms, we will define and explain the meaning behind the letters, the letters beyond the words, and the intent of those words.
We would never indulge in pompous and deceptive linguistic behavior like Mr. Brand X Broker in our fictitious story did to Mr. Sloane. In fact, if Mr. Sloane comes to Palm State Mortgage Company, we guarantee he will understand every word we say.