When it comes to the mortgage terminology used by real estate and mortgage professionals, most home buyers are left confused as to what they are actually saying during the home buying process. There are many terms that many of you may not know the meaning of or have never even heard before. Here we’ve created a guide to help you understand what is actually being said to you during the hectic time of buying a home!
Down payment: A type of payment made in cash during the purchase of a relatively expensive item (i.e. a house). This is usually represented as a percentage of the full purchase price of a home.
Interest Rate: The amount that is charged by a lender to a borrower for the use of assets. These are usually noted on an annual basis.
Annual Percentage Rate or APR: Standardized method of calculating the cost of a mortgage, specified as a yearly rate, which includes the following: interest, mortgage insurance & certain points or credit costs.
Principal: The amount that is actually borrowed or still owed for a loan. Another way to look at this would be the amount of debt, excluding the interest, left on a loan.
Adjustable-Rate Mortgage or ARM: This is a home loan where the interest rate changes intermittently based on a standardized financial index.
Fixed-Rate Mortgage: A home loan where the interest rate will remain constant throughout the life of the loan, most often 15 or 30 years.
Appraisal: A valuation of a property by the estimate of an authorized person.
Escrow: An account where a third party holds all real estate documentation and money until all conditions of the sale are met. This is also where money for property taxes and insurance is held until they are paid.
Good Faith Estimate: A written estimate of projected closing costs that a lender must provide for the potential home buyer within three days of the home buyer submitting a loan application.
Homeowner’s Insurance: Insurance policy that includes hazard coverage, loss or damage to your property, as well as coverage for personal liability and theft.
Title Insurance: A policy that guarantees an owner hold title to a property and can legally transfer that title to someone else if needed. If any problem occurs, the title insurer pays any legal damages sustained.
Private Mortgage Insurance: A policy that safeguards the mortgage lender against defaults on loans by providing a way for them to recoup the cost foreclosures.
Closing Costs: There are expenses incurred by buyers and sellers when transferring ownership of the property during closing. The closing costs usually include: an origination fee, attorney’s fee, taxes, escrow payments, title insurance & sometimes discount points.
If you need help understanding any other types of mortgage “lingo”, please feel free to contact any of our mortgage professionals! We are here to help you get through this process with ease!
Bankrate.com 22 Most commonly used Mortgage Terms http://www.bankrate.com/finance/financial-literacy/22-most-commonly-used-mortgage-terms-1.aspx