There is no larger purchase that you will make in your life than buying a home. It is critical for First Time Home Buyers today to understand some key terms while applying for their first mortgage. I notice that a lot of First Time Buyers are almost afraid to ask questions. This should never be the case. If you are working with a lender or a Real Estate Agent that makes you feel like you are bothering them with questions, then it is time to re-consider working with them.
What causes a lot of confusion are the terms that are used through out the home buying process. In this post I will try to best describe some terms that you will be hearing so you will have a better understanding for what these terms mean.
APR - This is a commonly used acronym for Annual Percentage Rate. This is a good way to compare loan offers from different lenders. This calculation takes into account not just the interest rate that you are being offered but the fee's associated with the loan as well. It is important to understand that the APR does not have anything to do with your monthly payment. If you notice a large different between your interest rate and your APR it could be because the APR determines the trust cost of the loan, in the form of an annual percentage rate over the full term of the loan. The factors that go into your APR calculations are your closing costs and also your monthly mortgage insurance payment.
Title Insurance - This is a cost that a lot of First Time Home Buyers are not familiar with and what this does for them. This insurance not only protects you are a consumer but it also protect first mortgage lenders. Your main concern though is what exactly does this do for you?? Great question. The title company that you decide to work with is on the hook for issuing you "clear" title. This means that when you buy the home that all other previously existing liens against the property ( i.e. mortgages, judgement, and tax liens) have been satisfied. If a mistake was made and a lien was not paid in full and you were issued "clear" title, which your mortgage lender will require, then this title insurance will satisfy the lien with no responsibility to you.
Points - This is a term that strikes fear in most borrowers. In the past, points were used to add to commissions. This is now a thing of the past. A discount point will now get you an interest rate that is lower then a "par" rate. ( par - meaning there are no points associated with the rate) With a lot of the first time home buyers today using FHA financing, a great way to get yourself a permanent lower rate is to actually get the seller to pay for you to get a lower rate. FHA allows for the seller to pay up to 6% of your closing costs and pre-paid expenses so if that 6% is agreed upon, why not use that extra money from the seller to save yourself some money on your monthly payment over the next 30 years!?!?!
NMLS - This is short for Nationwide Mortgage Lending System. It is now a requirement that your mortgage loan originator be fully licensed. To be licensed he or she is required complete pre-licensing education and also passing a test. You can click here and search your loan officers name in NMLS directory to ensure that you are working with a fully licensed mortgage loan originator.
This is just part 1 of my "Key Terms for A First Time Home Buyer to Understand" blogs. It is very important to set the proper expectations for First Time Home Buyers today. It only helps the whole process go as smoothly as possible. As I mentioned at the start of this post, this is the largest purchase that you will make. With arming yourself with the right information, you will remove any un-needed stress through out the home buying process