Ever hear of FHA? How about conventional? What about escrow? Mortgages have a language all their own, and it can be rather overwhelming, especially if you’re new to the home buying process. Let’s define some key terms and clear up misconceptions that many individuals have about purchasing a home!
PMI stands for Private Mortgage Insurance. This is money you pay to protect the lender in the event of a loan default (typically only charged when the loan-to-value is greater than 80%).
A pre-approval is a written evaluation based on your application that determines your specific loan amount. A prequalification tends to be less rigorous and less accurate, so we recommend a preapproval.
Principal + Interest + Taxes + Insurance = the four components of your monthly mortgage payment.
An ARM is a home loan with an interest rate that varies during the life of the loan. With interest rates so low, we do not currently recommend an ARM for anyone.
APR is the total yearly cost of a mortgage. It includes the base interest rate, points, and any other add-on loan fees and costs.
An application fee is the cost to apply for a loan, including a credit report and property appraisal.
An appraisal is a written estimate of the value of a property.
The appraised value is a professional evaluation of a property’s fair market value.
Closing is the transfer of ownership of the property from the seller to the buyer, or the settlement of refinance.
Closing costs are any fees above the price of the property incurred by buyers and sellers during closing.
A co-signer is someone with no ownership of the property who is responsible for paying back a loan.
A credit report is a detailed analysis of your credit history prepared by a credit bureau.
DTI is the percentage that compares your monthly debt to your monthly income.
A down payment is the cash you pay to make up the difference between the price of the home and the loan amount.
Equity is the difference between a property’s fair market value and the amount still owed on the mortgage.
Escrow is money or another item of value held by a third party that will be delivered upon completion of a condition.
These are government-sponsored enterprises (GSEs) that buy home loans from lenders.
This is the nation’s most widely-used measure of credit risk, calculated from the information on your credit report. (FICO stands for Fair, Isaac and Company, the data analytics firm that created the system.)
A home loan with an interest rate that stays the same throughout the life of the loan.
The amount of your mortgage divided by the appraised value of the property.
A fee you pay to the lender for processing a loan application.
Points are a type of prepaid interest you can pay to cover loan costs or lower your rate.
Principal is the amount of money borrowed or remaining unpaid on your loan.
A rate lock is a promise from your lender to hold a specific interest rate and points for specific time period.
When you refinance, you pay off one mortgage and take out a new one, which typically has a lower rate or shorter term.
Underwriting means evaluating a loan application to determine the risk involved to the lender.
Yes! Check out our blog about credit by clicking here. You’ll have to address recent inquiries (if applicable), judgements must be paid and cleared off the public record, and you must have three trade lines (accounts) for a 12 month period.
No! There are several loan options with lower down payment requirements. State housing agency programs and other gifts and grants may also be available to help with your down payment and closing costs. Check out our blog here about some of those programs.
No! One of the best loan programs for someone with a lower credit score is an FHA home loan. You only need a 580 credit score or higher to qualify for a loan, the minimum down payment is just 3.5%!
We know this is a lot of information. That’s why we’re here to help! If you have any questions or are seeking further clarification regarding any of these terms, please reach out.