General Mortgage Knowledge: Products, Terms, Pricing, and Participants
Products, pricing, and the cast
A candidate must distinguish loan type, term, and pricing. Conventional loans are not government-insured; FHA insures loans with mortgage insurance premiums; VA guarantees eligible veterans' loans; USDA targets eligible rural areas and income limits. Fixed-rate loans have level principal and interest payments; adjustable-rate mortgages have initial fixed periods, adjustment intervals, and caps (initial, periodic, lifetime). LTV compares loan amount to property value; CLTV adds subordinate liens. DTI compares monthly debts to income. PITI includes principal, interest, taxes, and insurance; escrow may also include mortgage insurance and HOA dues where permitted.
Participants include the borrower, broker, lender, underwriter, processor, appraiser, title company, closing agent, servicer, and investor. The broker originates; the lender funds and may sell to an investor; the servicer collects payments.
Traps: APR reflects the cost of credit over the full term and is not the same as the note rate. Discount points are prepaid interest; origination fees compensate the lender. ARM caps are not interchangeable; a 2/2/6 means 2% initial, 2% periodic, 6% lifetime. FHA MIP and conventional PMI have different cancellation rules. A lower payment can come from a longer term or interest-only feature, not necessarily a lower rate.
Worked example: A $300,000 loan at 6% for 30 years has principal and interest of about $1,798. Add $300 taxes and $100 insurance for PITI of about $2,198. At 90% LTV, PMI may apply; at 80% LTV it usually does not for conventional loans, subject to lender and investor rules. Rule of thumb: separate rate, APR, and payment; then layer taxes, insurance, and mortgage insurance.