Let's first review some of the most common terms used in the mortgage industry.

Appraisal - This is a documented analysis of the property the consumer intends to purchase or refinance. This detailed report will provide the lender with the necessary information for them to verify that the collateral is worth more or equal to the requested amount.

Annual Percentage Rate (APR) - an expression of the effective interest rate the borrower will pay on a loan. The APR takes into all up-front costs and one-time fees.

Collateral – The item that the bank is loaning money for and will seize if you don't pay your bills.

Credit Report – Experian, Equifax and Transunion all compile reports based on your individual credit history. The more times you have been late or completely missed a payment, the lower your score is going to be. Lack of significant credit could also be a reason for a low score. All the scores and information will vary by each report and the lenders typically pull all three when applying for a mortgage.

1. If your credit scores exceed 700, you will probably not have a problem getting a loan unless you are carrying a lot of debt.
2. If your credit score is between 600 and 700, you are a slight risk and are similar to most of the country.
3. If your credit score is below 600, you pose a significant risk to the lenders. It will be difficult to secure a loan without a co-applicant.

Good Faith Estimate – The federal government requires that lenders provide a GFE of all costs associated with a mortgage. This purpose of this is to allow borrowers the chance to compare the various offers they receive.

Housing and Urban Development (HUD) – Borrowers will receive a HUD Statement which will itemize all settlement costs due when at the closing.

Loan to Value (LTV) – The loan to value is defined by the amount borrowed divided by the value of the property. Most lenders will only allow 80% of the value of the collateral to be borrowed. This minimizes their risk if you were to default on the loan.

Principal and Interest (P&I) – This terms refers to what is included in your payment. A P&I payment only includes the amount of the principle and the interest owed each month.

Principal, Interest, Taxes and Insurance (PITI) – Some lenders will set up your mortgage payments to include the principal, interest, taxes and insurance. This is a great way to control your budget. It will eliminate you having to come out of pocket for the taxes and insurance at year's end. When comparing loans, make sure you know how your payments are defined.

Private Mortgage Insurance (PMI) - If you need to borrow more than 80% of the homes value, most lenders will require you to purchase PMI. It is typically 0.5% of the loan amount.