The home buying process can be difficult to navigate, especially if you don’t know all the jargon. The following list of terms features 10 of the most commonly used so you can stay ahead of the game:
Adjustable Rate Mortgage
Also known as an ARM, an Adjustable Rate Mortgage has two terms. During the initial term, the interest rate (and therefore the monthly payment) remains the same. During the second term, the interest rate fluctuates based on pre-agreed upon terms.
Annual Percentage Rate (APR)
Also known as the APR, the annual percentage rate helps borrowers compare the overall cost of different loans. The APR does so because it takes the full cost of a loan, including the interest and loan fees, and expresses that number as a yearly percentage rate.
The appraisal is an estimate of a property’s value made by a qualified “appraiser.” The appraiser will look at a variety of factors, such as the state of the house and/or property, age of the home, size of the lot, and sale price of comparable homes that have recently sold in the area.
Biweekly Payment Mortgage
A biweekly payment plan means the borrower makes a payment every two weeks, rather than once a month. Each biweekly payment is equal to half of the borrower’s monthly payment. This means by the end of the year, a borrower will have made one extra mortgage payment, resulting in a substantial savings over the lifespan of the loan.
Also known as DTI, the debt-to-income ratio is a percentage which reflects the borrowers monthly obligations on long-term debt divided by their gross monthly income.
Earnest money is a lump sum of money given to the seller prior to the loan closing. It indicates the buyer’s good intentions. This sum is applied to the down payment at closing. WARNING: Earnest money agreements are written differently. In some instances the buyer will get the money back if the sale falls through. In other instances, the seller will keep the money if the sale falls through. Make sure to read your earnest money agreement carefully, so you understand to what you’re committing.
Equity is the difference between fair market value and the current amount of debt you owe. For example, if you put 20% down and you’re buying your home for fair market value, you’ll have 20% of the equity in your home at the point of purchase.
The Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation set loan limits for mortgage assistance programs. Jumbo loans refer to loans larger than these government supported programs.
If you are unable to put down 20% of the purchase price, most lenders will require you to carry mortgage insurance. The monthly insurance premiums you will pay protect lenders in event you default on your loan.
Points (Loan Discount Points)
Also known as ‘discount point’, points allow you to buy down your interest rate. The cost of each point is typically 1% of the purchase price. Usually, up to three points can be purchased.
Have questions about additional mortgage terms? Talk to a loan officer today.