Mortgage terminology – do you know the lingo?
If you are buying or refinancing a home, your loan officer or real estate agent may be using some words that you are unfamiliar with. Below we have listed some commonly used terms you will hear throughout the home financing process.
Adjustable Rate Mortgage (ARM) – An adjustable rate mortgage has an introductory interest rate that changes periodically. It starts with a low, fixed interest rate and later changes depending on an adjustment index.
Annual Percentage Rate (APR) – The annual percentage rate is a broad measurement that reflects your interest rate plus additional fees over the life of the loan. It is shown as a percentage of your mortgage amount.
Appraisal – An appraisal determines the value of the home you want to purchase. This is done by an inspection from an appraiser who will evaluate the home and compare it to similar real estate that has recently sold in the area.
Closing Costs – Closing costs include all the fees and costs that need to be paid before or at the time of closing. Your loan officer will go over all the costs that you will be responsible for according to your mortgage contract.
Credit Score – Your credit score gives your lender a quick and objective way to measure the risk of issuing you a loan. FICO scores are the most widely accepted credit score used.
Down Payment – The lump sum of money you pay toward your home upfront is called a down payment. A typical down payment ranges from 3% to 20% of the purchase price depending on your loan type. Some loan programs have no down payment amount required.
Debt-to-income Ratio (DTI) – Your Debt-to-Income Ratio is the percentage of your gross income that goes towards paying off your overall debt every month. The lower your debt-ratio, the better your chances are of qualifying for a mortgage.
Fixed Rate Mortgage – A fixed rate mortgage has an interest rate that remains the same for the entire life of the loan. If your interest rate is fixed, your monthly payments do not rise or fall.
Homeowner’s Insurance – Before a loan can close, you are required to secure a home insurance policy. This policy protects your home and all the things inside it in the case of a fire or other qualifying event.
Origination Fee – when applying for a mortgage loan, borrowers are often required to pay an origination fee to the lender. This fee may include an application fee, appraisal fee, and fees for all the follow-up work and other costs associated with the loan.
Principal – The total amount you owe on your home is called the principal. As you pay down this balance, you are earning more equity in your home.
Still have questions? Contact us any time with any of your home financing questions, we are always happy to help.
How Much Home Can You Afford?
December 31, 2020
Knowing what you can realistically afford is an important first step to buying a home. One of the mistakes people commonly make when home searching…Read the full story
HOME OWNERSHIP TIPS
Pre-Qualification vs Pre-Approval – What’s the difference?
December 31, 2020
What Are the Differences in Mortgage Pre-Qualification and Pre-Approval? When you’re considering buying a home, there are two terms you’ll hear, both of which are…Read the full story