Homebuyer’s Dictionary: 10 Mortgage Terms That You Should Know Before Buying A Home.
When you begin the process of purchasing a home, it’s easy for anyone to become overwhelmed by unfamiliar industry terms. Whether you’re a first-time buyer or not, the acronyms and jargon are helpful to understand in order to best advocate for yourself throughout the process. Let’s break down the top ten mortgage terms you should know before shopping for a home or mortgage.
ARM - Stands for Adjustable Rate Mortgage. In these types of mortgages, the interest rate is fixed for a determined period of time; then, the interest rate will adjust every six months for the remainder of the loan.
Closing Costs - Fees that are due on closing day. These fees are comprised of the down payment, appraisal, title, etc.
DTI - Stands for Debt-To-Income ratio. A ratio comparing a borrower’s expenses to their income. This helps determine the amount that one can be pre-approved for.
Earnest Money - Money that is given to the sellers after putting in an offer. It’s a sign of good faith that will later be applied to your closing costs.
Escrow - An account created by a lender and funded by the borrower. A portion of your mortgage payment will fund this account to cover taxes and insurance.
Fixed-rate - In these types of mortgages, the interest rate will not change; monthly payments (principal and interest) remain stable throughout the life of the loan.
Mortgage Broker - A licensed professional who works on behalf of the borrower to shop for the best rates available.
PMI - Stands for Private Mortgage Insurance. This type of insurance is typically required on conventional loans when opting for less than 20% down payment. It protects the lender if the borrower defaults on the loan.
Points - As a method of lowering monthly payments, borrowers can prepay interest at closing. One point equates to 1% of the loan amount.
Underwriting - A process completed by a third party to verify income/assets and information given on the mortgage application.
Understanding these ten industry terms will help you go into the homebuying process with confidence and clarity. If you do encounter any part of the home buying process that leaves you feeling uncertain, never be afraid to ask for clarification either from your lender or your realtor. If you’d like to contact our loan officers, their contact information can be found under the “Meet Our Team” tab.
Happy house hunting!