Home Buying and Mortgage Terms
Do you ever wonder what some of the real estate terms are that you hear when looking for a new home? The descriptions below may help!
Interest Rates — An interest rate is the rate at which interest is paid by a borrower (debtor) for the use of money that they borrow from a lender (creditor). Interest rates typically don’t vary much; however, exceptionally low interest rates may have added fees and loan origination charges.
Points — These are the extra fees the lender charges as part of its compensation for making a loan at a particular interest rate, given the perceived credit risk of the borrower. They can be paid at the time of closing or financed over the full term of the loan. As a general rule, buyers want to pay less on points if they plan to stay in a home only a few years. Buyers expecting to stay in the new home for more than five years might want to opt for slightly higher points and a lower interest rate.
Rate Lock — Interest rates fluctuate, but buyers can lock in a quoted interest rate for a specific amount of time. Ask how long a rate can be guaranteed — 30 days? 45 days? 60 days?
Debt-to-Income Limits — Know your debt-to-income ratio and ask if the lender can accept that ratio without charging more in rate or fees for the type of loan you want.
Turn Time — How long will the whole process take from application to closing? What is the lender’s average turnaround time?
Miscellaneous Fees — Charges for origination, processing, document preparation, courier and application fees.
Adjustable Rate Mortgage (ARM) — Through this type of loan, monthly payments can fluctuate as interest rates change.
Annual Percentage Rate (APR) — The cost of a loan calculated by its yearly interest rate, including interest, points, mortgage insurance and other fees associated with the loan.
Balloon Mortgage — This type of loan provides a low interest rate for an initial fixed period of time, after which the balance is due or is refinanced.
Bridge Loan — This is a short-term loan secured through the house being sold with the funds used toward the closing costs or construction of the new home.
Closing Costs — These are costs the borrower pays at closing, in addition to the down payment, to cover the transfer of ownership.
Down Payment — The difference between the cost of the home and amount financed.
Escrow — A special account into which the mortgage lender puts a portion of each monthly mortgage payment to cover expenses such as property taxes and homeowners insurance.
Fixed Rate Mortgage — A mortgage in which the interest rate and monthly payments remain unchanged throughout the term of the mortgage.
Mortgage Insurance — Insurance against loss provided to a mortgage lender in case the borrower defaults.
A few more tips
Request a pre-approval letter — This will state a maximum loan amount from the lender you expect to use and tells the builder that you are financially qualified.
Formally applying for the loan — Review the Truth in Lending and Good Faith Estimate lenders provide to you. Have any questions answered early in the loan process.
Watch the calendar — Did the appraisal come in at the amount needed for the loan? Do underwriters need additional documentation? Are there any problems that could delay – or derail – the closing? Make sure to request a copy of the appraisal after it is completed.
Request a copy of the settlement sheet (HUD-1) three days in advance of scheduled closing — Compare the settlement sheet line by line with earlier estimates. Ask for explanations or corrections of any discrepancies or higher-than-expected charges.