If you want to buy a home and take a Mortgage, you should to know about Mortgage Terms. When you never understand about the world of loan or mortgage before, you should learn about the following terms in the mortgage world. There are a bunch of terms that you should know so that you can choose the affordable loan and match it with your salary.
Common Mortgage Terms
You can get to know about the mortgage world by reading the information in this article. There is a bunch of information such as Adjustable Rate Mortgage, Amortization, Appraisal, and so on. here are some common mortgage terms to know.
1. Adjustable Rate Mortgage (ARM)
Adjustable-rate mortgage is One type of mortgage that has interest rates in a fixed or specific time period. The borrower can set it as a yearly or monthly period. This type of mortgage will give the borrower an interesting loan.
2. Annual Percentage Rate (APR)
Another type of mortgage is Annual Percentage Rate can be used to determine a mortgage loan. This mortgage will make lenders score not only the interest rate but also any points, fees of a mortgage broker, and so on. You can get approval more than one mortgage so that you will receive loan more than one lender.
You can extend your loan into fixed payments by using amortization. This kind of mortgage allows you to pay back your interest in loan and principal by using different amounts monthly. You can use this payment loan together with other payments of the loan.
You are a beginner in the mortgage world, so that you don’t understand the term appraisal. It’s common to do it. Anyway, you should know about this term since you want to get approval for your mortgage.
An assessment is one property to measure real estate, business, an antique by estimating the cost through an authorized professional person. This term is used to determine taxation and also calculate the selling price.
5. Ability To Repay (ATR)
You want to get a loan by a bank or lenders so that they have to ensure that you can pay back the loan. They will use a lot of your documents to score your credit. If you have a good credit score, they will give you the loan approval.
Otherwise, you cannot get the support of a mortgage loan from a bank and lenders. Your ability to pay back the loan is called Ability To Repay or ATR.
6. Closing Costs
When you have a mortgage loan, you have to pay back the loan monthly. The last hit cost to close the mortgage loan is called closing costs. You have to know this if you want to buy a home by using a lender or bank money. Almost all of the closing costs fall on the borrower. The seller only pays a little bit of cost.
This will be the final payment before you sign the document and paperwork to transfer home from the seller to the buyer. This cost is also to finish the home loan.
7. Closing Disclosure (CD)
IF you want to get the mortgage, you have to propose a mortgage from a bank or credit lender. Their representative will explain to you the term in detail.
You have to submit necessary documents such as bank account history, credit card history, proof of employment, and so on. If you always pay your debt on time, you can get a good score in credit. The lenders will trust you that you can pay back the mortgage loan.
The will give you approval in a specific term. There will be a final process, such as closing disclosure. This process has around the five-page form. You have to read the whole pages carefully and understand each point. Whenever there are questions, you can ask it directly. You will know about the fees that you have to pay monthly.
8. Debt to Income (DTI)
Another term about mortgage is Debt to Income. This term has to correspond toward your debt payments monthly divided by your income monthly.
This is one way of the method to score whether you can manage your financial balance in good condition. You have to make sure that you always maintain your balance by cutting an unnecessary item buying every month.
9. Down Payment
You may have to understand also about Down Payment. This term is a portion for you total price of your home that you will give it to the seller.
The rest payment to buy your home will come from your mortgage, like a home buyer loan. This term is expressed as percentages of at least 20%. If you have this kind of Down Payment, you can ignore the Private Mortgage Insurance, or we can abbreviate as PMI.
10. Home Equity
You can know about home equity also if you have a mortgage loan to buy a home. This home equity has a correlation towards your homeowner’s interests. This home equity can increase by time. Whenever the property value improves, home equity will also increase. You can increase this term by paid down the whole mortgage loan also.
There is a term about Escrow when you want to get a mortgage loan. Escrow that the third party make a deal to a real estate or hold money and property until there is an finish agreement between two side. This third party supposes to be neutral.
FICO is a credit score that Fair Isaac Corporation make it. This FICO score helps lenders to assess credit risk and determine whether they have to extend the loan or not for the borrower.
13. Fixed Rate Mortgage
You are a first-time homebuyer so that you have to know about Fixed Rate Mortgage also. This Fixed Rate A mortgage is similar to amortizing mortgage loans that the interest rate will have same similar value with amortizing the mortgage loan.
14. Loan Estimate
There are terms about loan estimates also in the mortgage loans. You have to understand about it so that you can estimate the important details about the loan that you want to use. This information is giving by lenders within three days after you apply for a mortgage loan.
15. Loan to Value (LTV)
The loan to value is a regulations or terms that lenders use it to determine the loan ratio to the value matching with the purchased of the asset. This term is using by banks and lenders to determine the ratio of the mortgage.
16. Origination Fee
There is a term called origination fee also in the mortgage. This term is lender giving charge for processing the new mortgage loan application. The charge is between 0.5% until 1% of the loan. This terms applies in the United States.
Points has another name such as mortgage point. This term allows you to get discount points. The lender will get fees paid when the buyer wants to pay the closing costs despite they reduced the interest rate.
18. Principal Balance
Principal Balance is the amount corresponding toward a mortgage or debt instrument. The amount of balances is depending on the interest rate that the borrower wants to choose.
19. Private Mortgage Insurance (PMI)
If you want to be home buyer first-time and get a mortgage loan, you have to know also about Private Mortgage Insurance. This insurance will charge the buyer with less than 20% for the home price to the buyer.
20. Title Insurance
You don’t understand title insurance as a first-time homebuyer. This title insurance is a term to protect the beneficiary against losses when there is proof later that someone beside the seller owned the property with the same sale time.
You have worked at the company so that you have a stable salary. You have a good habit of saving money so that you can use it for future needs such as to buy a home.
You cannot delay buying a home due to home costs, always getting higher every year. You can get a loan, but not with the balloon loan to buy your dream home.