ABCs of Your Mortgage Company

Analysis Statement: An analysis statement is a document that is created once every year. An escrow analysis is performed on an annual basis to determine the type and extent of any discrepancies within your account. These results are reported to your mortgage company with your analysis statement.

Balance: As with different types of bank account balances, this can refer to your payment balance or your mortgage balance.

Conforming loan limit: Fannie Mae and Freddie Mac will determine your conforming loan limit based on average home prices and the maximum amount of money they will loan or guarantee. This conforming loan limit is reset and re-evaluated every year by the Office of Federal Housing Enterprise Oversight. If a loan exceeds this conforming loan limit, it is called a Jumbo Loan and is usually over $420,000.

Discount points: Money you pay up front to lower the interest rate on your mortgage or home loan is called discount points or simply “points”. A discount point is equal to 1% of the total loan amount.

Escrow account: An escrow account is the account that is responsible for holding the taxes and insurance you are required to pay for your home. Often your mortgage company will require you to set up this type of escrow account when you opt to close your loan and will add payments for taxes and insurance to your monthly mortgage payment in order to keep these accounted for. As such, your mortgage company will simply remove the taxes and insurance from your escrow account each year when they are due instead of you having to come up with extra cash every year.

Fannie Mae and Freddie Mac: These two entities are sponsored by the government and are portions of the bureaucracy that have a federal charter that enables them to purchase mortgages from lending institutions and banks.

Installment loans: An installment loan is one that is repaid with a set number of fixed payments that are all equal in size and time period.

Loan to value ratio: The loan to value ratio is calculated on a regular basis and refers to the amount of money that you are asking a lender to borrow divided by the actual value of the home. For example, a loan to value ratio that was around 90% would be a mortgage company granting you a $90,000 loan for a home that is worth $100,000.

Mortgage Insurance Premium: A mortgage company charges a monthly MIP for loans that are backed by the government if your down payment is less than or equal to 20% of the value of the home. The MIP protects the mortgage company in the unlikely or unfortunate event that you default on your loan responsibilities.