Amortization--A repayment method in which the amount you borrow is repaid gradually though regular monthly payments of principal and interest. During the first few years, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.

Annual Percentage Rate (APR)--The cost of credit on a yearly basis, expressed as a percentage. Required to be disclosed by the lender under the Federal Truth in Lending Act, Regulation Z. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate on the mortgage note. Does not include title insurance, appraisal, and credit report costs.

Application--An initial statement of personal and financial information which is required to approve your loan.

Application Fee--Fees that are paid upon application.

Appraisal--A fee charged by an appraiser to render an opinion of the market value of your home as of a specific date. Required by lenders to obtain a loan.     

Balloon Payment--A lump sum payment for the unpaid balance of the loan.

Cap--The maximum allowable increase, for either payment or interest rate, for a specified amount of time on an adjustable rate mortgage.

Cash Out--Receiving money back when refinancing your present mortgage.

Ceiling--The maximum allowable interest rate over the life of the loan of an adjustable rate mortgage.

Closing Costs--Any fees paid by the borrowers or sellers during the closing of the mortgage loan. This normally includes an origination fee, discount points, attorney's fees, title insurance, survey, and any items which must be prepaid, such as taxes and insurance escrow payments.

Conforming Loan--Generally, a mortgage loan under $359,650. Qualifying ratios and underwriting methods are standardized to a large degree.

Contract of Sale--The agreement between the buyer and seller on the purchase price, terms, and conditions necessary to both parties to convey the title to the buyer.

Credit Limit--The maximum amount that you can borrow under a home equity plan.

Debt Service--The total amount of credit card, auto, mortgage or other debt upon which you must pay.

Deed of Trust--Used in many western states, the agreement used to pledge your home or other real estate as security for a loan. Similar to a mortgage.

Discount Points (or Points)--The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $100,000 mortgage would equal $2,000).

Down Payment--The difference between the purchase price and that portion of the purchase price being financed. Most lenders require the down payment to be paid from the buyer's own funds. Gifts from related parties are sometimes acceptable, and must be disclosed to the lender.

Due on Sale--A clause in a mortgage agreement providing that, if the mortgagor (the borrower) sells, transfers, or, in some instances, encumbers the property, the mortgagee (the lender) has the right to demand the outstanding balance in full.

Effective Interest Rate--The cost of credit on a yearly basis expressed as a percentage. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate on the mortgage note. Useful in comparing loan programs with different rates and points.

Encumbrance--A claim against a property by another party which usually affects the ability to transfer ownership of the property.

Equity--The difference between the fair market value (appraised value) of your home and your outstanding mortgage balance.

First Mortgage--A mortgage which is in first lien position, taking priority over all other liens (which are financial encumbrances).

Fixed Rate--An interest rate which is fixed for the term of the loan. Payments as well are fixed at one amount.

Good Faith Estimate--A written estimate of closing costs which a lender must provide you within three days of submitting an application.

Gross Income--For qualifying purposes, the income of the borrower before taxes or expenses are deducted.

Home Equity Line of Credit (or HELOC) --A loan providing you with the ability to borrow funds at the time and in the amount you choose, up to a maximum credit limit for which you have qualified. Repayment is secured by the equity in your home. Simple interest (interest-only payments on the outstanding balance) is usually tax-deductible. Often used for home improvements, major purchases or expenses, and debt consolidation.

Home Equity Loan--A fixed or adjustable rate loan obtained for a variety of purposes, secured by the equity in your home. Interest paid is usually tax -deductible. Often used for home improvement or freeing of equity for investment in other real estate or investment. Recommended by many to replace or substitute for consumer loans whose interest is not tax-deductible, such as auto or boat loans, credit card debt, medical debt, and education loans.

Hazard Insurance--A contract between purchaser and an insurer, to compensate the insured for loss of property due to hazards (fire, hail damage, etc.), for a premium.

HUD I Settlement Statement--A form utilized at loan closing to itemize the costs associated with purchasing the home. Used universally by mandate of HUD, the Department of Housing and Urban Development.

Index--A number, usually a percentage, upon which future interest rates for adjustable rate mortgages are based. Common indexes include the Cost of Funds for the Eleventh Federal District of banks or the average rate of a one year Government Treasury Security.

Interest Rate--The periodic charge, expressed as a percentage, for use of credit.

Jumbo Loan--Mortgage loans over $359,650. Terms and underwriting requirements may vary from conforming loans.

Loan to Value Ratio (LTV)--A ratio determined by dividing the sales price or appraised value into the loan amount, expressed as a percentage. For example, with a sales price of $100,000 and a mortgage loan of $80,000, your loan to value ratio would be 80%. Loans with an LTV over 80% may require Private Mortgage Insurance, defined below.

Lock or Lock In--A commitment you obtain from a lender assuring you a particular interest rate or feature for a definite time period. Provides protection should interest rates rise between the time you apply for a loan, acquire loan approval, and, subsequently, close the loan and receive the funds you have borrowed.

Margin--An amount, usually a percentage, which is added to the index to determine the interest rate for adjustable rate mortgages.

Minimum Payment--The minimum amount that you must pay, usually monthly, on a home equity loan or line of credit. In some plans, the minimum payment may be " interest only " ( simple interest ) . In other plans, the minimum payment may include principal and interest (amortized).

Mortgage Banker--Originates mortgage loans, loaning you their funds and closing the loan in their name. Morgan Financial is a mortgage banker.

Mortgage Broker--As do mortgage bankers, takes loan application and processes the necessary paperwork. Unlike a mortgage banker, brokers do not fund the loan with their own money, but work on behalf of several investors, such as mortgage bankers, S and L, or investment bankers. Morgan Financial does not work with any middlemen Mortgage Brokers.

Mortgage Insurance (MIP or PMI)--Insurance purchased by the borrower to insure the lender or the government against loss should you default. MIP, or Mortgage Insurance Premium, is paid on government-insured loans (FHA or VA loans) regardless of your LTV (loan-to-value). Should you pay off a government-insured loan in advance of maturity, you may be entitled to a small refund of MIP. PMI, or Private Mortgage Insurance, is paid on those loans which are not government-insured and whose LTV is greater than 80%. When you have accumulated 20% of your home's value as equity, your lender may waive PMI at your request. Please note that such insurance does not constitute a form of life insurance which pays off the loan in case of death.

Mortgage Loan--A loan which utilizes real estate as security or collateral to provide for repayment should you default on the terms of your loan. The mortgage or Deed of Trust is your agreement to pledge your home or other real estate as security.

Mortgagee--The lender in a mortgage loan transaction.

Mortgagor--The borrower in a mortgage loan transaction.

Negative Amortization--Amortization in which the payment made is insufficient to fund complete repayment of the loan at its termination. Usually occurs when the increase in the monthly payment is limited by a ceiling. The portion of the payment which should be paid is added to the remaining balance owed. The balance owed may increase, rather than decrease over the life of the loan.

PITI--Principal, interest, taxes and insurance, which comprise your monthly mortgage payment.

Points--The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $100,000 mortgage would equal $2,000).

Prepayment Penalty--A fee paid to the lending institution for paying a loan prior to the scheduled maturity date.

Qualifying Ratios--Comparisons of a borrower's debts and gross monthly income.

Right to Rescission--The legal right to void or cancel your mortgage contract in such a way as to treat the contract as if it never existed. Right of rescission is not applicable to mortgages made to purchase a home, but may be applicable to other mortgages, such as home equity loans.

Security Interest--An interest that a lender takes in the borrower's property to assure repayment of a debt.

Servicing a Loan--The ongoing process of collecting your monthly mortgage payment, including accounting for and payment of your yearly tax and/or homeowners insurance bills.

Title--The written evidence that proves the right of ownership of a specific piece of property.

Title Insurance--Protection for lenders or homeowners against financial loss resulting from legal defects in the title.

Transaction Fee--A fee which may be charged each time you draw on a home equity credit line.

Underwriting--The process of verifying data and approving a loan.

Variable Rate--An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.

Credit
Credit Scores

Overview
Credit scoring is a statistical method of assessing the credit risk of a loan applicant. It uses mathematical models to evaluate a person's credit worthiness based on their credit history and current credit accounts. Credit scoring was first invented and developed in the 1950s, but has come into widespread use in just the last two decades.
In the mid 1980s the three major credit bureaus, Equifax, TransUnion and Experian (formerly TRW) all worked with Fair, Isaac and Company (FICO) to develop credit scoring models. These models allow each bureau to offer a score based solely on the contents of the credit bureau's data about a person.

The actual numerical score is a number that indicates the likelihood that an individual will pay back a loan. It is typically calculated by reviewing the following parameters:

Each major credit bureau has its own unique method for calculating credit scores. However, the scoring models have been somewhat normalized so that a numerical score at one bureau is roughly the equivalent of the same score at another. Therefore, a score of 600 from Equifax indicates the same creditworthiness as a score of 600 from Trans Union or Experian, even though the calculations used to determine those scores may be different at each bureau.

Mortgage brokers and lenders frequently use these scores (commonly known as FICO scores) as an important factor in the decision whether or not to offer credit. The higher your credit score the better credit risk you are. Depending on the credit bureau, scores range from 375 to 900 points, but those numbers mean little on their own. They only become meaningful within the context of a particular lender's underwriting guidelines.

Nevertheless, because major institutions in the mortgage industry such as the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC) have enforced guidelines for lenders based on credit scoring, certain general rules are accepted. So, in general, credit scoring will place a loan applicant in of the following three categories.


Credit Score Guidelines
Scoring models like the one developed by FICO have always been shrouded in mystery, especially when it comes to specifics. Generally speaking, though, they utilize your credit history, income, outstanding debt and debt utilization over the years, access to credit, and other indicators of your financial behavior to determine how likely you are to pay your bills on time, or if at all.

A numerical score is then developed, typically ranging from 300 to 900, with the low end of the scale indicating a poor credit risk. This can tell a lender whether or not he'll lend to you. For example, a credit score of 620 is frequently cited as a "cutoff point" for loans which can be funded by FNMA or FHLMC. Below that, and you're usually off into the private "sub-prime" market, where rates are higher.

650 and Above
In general, a score of 650 or above indicates a very good credit history. People with these scores will usually find the loan process quick and easy, and will have a good chance to obtain a loan at a relatively low rate of interest.

620 to 650
Scores between 620 and 650 indicate basically good credit, but also suggest to lenders that they should look at the potential borrower to asses any particular credit risks. (Average FICO scores fall into this range.) People with scores in this range have a good chance at a loan at a good rate, but may have to provide additional documentation and explanations to the lender before the loan is approved. This means that their loan closing may take longer, making their experience more like that of borrowers in the days before credit scoring, when every individual was researched.

Below 620
A score below 620 may prevent a borrower from getting the best interest rates, as they may be considered a greater credit risk - but it does not mean that mortgage funding can't be found. The process will probably be lengthier and the terms of loan less appealing, but often a loan can still be obtained.


Scoring Models
A typical scoring model contains a list of questions and answers. A specific number of points are assigned to each answer. Only information proven to be predictive of future credit performance is used in a model. Below are some examples of what a typical model will (and will not) consider.

Information from your credit application:
    1) How long you've lived at your current address
    2) Your current occupation
    3) Your financial obligations

Information from your credit bureau report:
    1) Amount of outstanding credit balances
    2) Amount of credit you are currently using
    3) Length of time with established credit
    4) Any late payments made

These items are definitely not considered:
    1) Your race
    2) Your gender
    3) Your religion
    4) Marital status
    5) Place of birth
    6) Neighborhood you live in

	35% of the score is determined by payment histories on your credit accounts, with recent history weighted a bit more heavily than the distant past.
	30% is based upon the amount of debt you have outstanding with all creditors.
	15% is produced on the basis of how long you've been a credit user (a longer history is better if you've always made timely payments).
	10% is comprised of very recent history, and whether or not you've been actively seeking (and getting) loans or credit lines in the past few months.
	10% is calculated from the mix of credit you hold, including installment loans (like car loans), leases, mortgages, credit cards, etc.

Other models being employed are sure to utilize these in various weightings, plus other data that may be fed in to the model. These might include your address or zip code, how often you've moved and other public and private information about you.

Credit Report Errors
You should correct any errors on your report. It's a good idea to review your credit report from each bureau regularly. If you see an inaccuracy, report it to the credit bureau. The three major credit bureaus in the United States are Equifax, Trans Union and Experian. All of these companies have procedures for correcting information promptly.

If you discover incorrect information when applying for a loan, be sure to tell you Morgan Financial. They should be aware of the fact that erroneous data may lead to an unusable score, and consider that fact when making their decision.


Raising Your Score
You can improve your future score, but it is unlikely that any single action you will take will have a large impact on your score immediately. This is because your score reflects your credit patterns over time.

Here are some things you can do now that will improve your score in the future:
   1) Pay your bills on time. Delinquent payments and collections can have a major negative impact on your score. As
      they get older and you pay all other obligations on time, the delinquent information will have less impact.
   2) High outstanding debt can affect your score, so pay down any loan balances.
   3) Apply for new credit sparingly. Shopping for credit can have an adverse affect on your score.

It is important to realize that there is no single action that will immediately raise your score. Each time a credit score is calculated, specific reasons (score factors) are delivered to the lender along with the score. If you've been given your score, you can ask Morgan Financial for these reasons.
These factors represent the three major reasons why your score was not higher. Anything that you can do to address these factors will most likely improve your score.


Finding Out Your Score
If asked, Morgan Financial will tell you your score, though other mortgage companies may not. One reason is that many different types of scores are in use, therefore the number by itself might not hold much meaning to you. Another is that the scores can change on a daily basis as new information is added to your credit file.

A credit bureau score is just a tool that lenders use. By itself it does not tell you if your application for credit will be approved or not. If you find out your score is 610, for example, you also need to know your lender's policy for those borrowers with scores in that range.

Lenders are not required to disclose your score, but if you have been turned down for a loan in whole or part because your score was too low, they are required to give you the reasons for the score that you received. These reasons give you valuable information you can use to improve your score.

Credit Bureaus
Credit reporting agencies (CRAs) purchase information from the three main credit bureaus. But only the bureaus themselves can make changes on their records. The bureaus do not share information with each other, so to ensure proper removal or change of information, you should contact all three bureaus. Whenever possible, always contact the creditor directly and get written documentation and the full name of the person you spoke with.

Important!
Remember that contact information changes frequently, and many bureaus now offer online credit reports. Be sure to check the Web sites below for the most current information and instructions.

Equifax
Credit Information Services
P.O. Box 740241
Atlanta, GA 30374
1-800-685-1111

Experian (formerly TRW)
P.O. Box 2104
Allen, TX 75013-2104
1-888-397-3742

TransUnion Corporation
P.O. Box 2000
Chester, PA 19022
1-800-888-4213

Requests for credit reports may require the following information:
1) First, middle and last name
2) Current address
3) Previous addresses in past two years
4) Social Security Number
5) Date of birth
6) Current employer
7) Phone number
8) Signature
9) Applicable fee ($8.50 maximum)

Credit Reports Overview Frequently Asked Questions

Overview
If you've ever applied for a charge account, a personal loan, insurance, or a job, there's a file about you. This file contains information on where you work and live, how you pay your bills, and whether you've been sued, arrested, or filed for bankruptcy.

Companies that gather and sell this information are called Consumer Reporting Agencies (CRAs). The most common type of CRA is the credit bureau. The information CRAs sell about you to creditors, employers, insurers and other businesses is called a credit report or consumer report.

The Fair Credit Reporting Act (FCRA), enforced by the Federal Trade Commission, is designed to promote accuracy and ensure the privacy of the information used in credit reports. Recent amendments to the Act expand your rights and place additional requirements on CRAs. Businesses that supply information about you to CRAs and those that use credit reports also have new responsibilities under the law.

Here are some frequently asked questions consumers have about credit reports and Consumer Reporting Agencies. Note that you may have additional rights under state laws.

3) Is there a charge for my report?

Sometimes. There's no charge if a company takes adverse action against you, such as denying your application for credit, insurance or employment, and you request your report within 60 days of receiving the notice of the action. The notice will give you the name, address, and phone number of the CRA. In addition, you're entitled to one free report a year if you can prove that: You're unemployed and plan to look for a job within 60 days. You're on welfare. Your report is inaccurate because of fraud. Otherwise, a CRA may charge you up to $8.50 for a copy of your report.

9) How long can a CRA report negative information?

Seven years. With the following exceptions: Bankruptcy information may be reported for 10 years. Information reported in response to an application for a job with a salary of more than $75,000 has no time limit. Information reported because of an application for more than $150,000 worth of credit or life insurance has no      time limit. Information about a lawsuit or an unpaid judgment against you can be reported for seven years or until the statute      of limitations runs out, whichever is longer.

Fair Credit Reporting Act

Summary of Consumer Rights
The federal Fair Credit Reporting Act (FCRA) is designed to promote accuracy, fairness, and privacy of information in the files of every Consumer Reporting Agency (CRA). Most CRAs are credit bureaus that gather and sell information about you, such as if you pay your bills on time or have filed bankruptcy, to creditors, employers, landlords, and other businesses.

You can find the complete text of the Federal Trade Commission Web site. The FCRA gives you specific rights, as outlined in the summary below. You may have additional rights under state law. You may contact a state or local consumer protection agency or a state attorney general to learn those rights.

For additional information, or questions regarding Credit Reporting Agencies (CRAs), creditors and others, please visit the Federal Trade Commission.