Congratulations! You are taking the first steps to changing your life by buying a home. If you’re buying a home, you are probably applying for a mortgage. Unless you’ve been involved in a home sale before, there are many things you will be learning about for the first time - and lots of words that you have never heard before. Don't worry! Nearly everyone feels like a stranger in a strange land when they apply for a mortgage. To make it a little easier, here is a handy list of some of the key terms that every person involved in a real estate transaction should understand.
Appraisal: The written analysis of the estimated value of a property, as prepared by a qualified appraiser, which often determines if you will qualify for the loan.
Closing: One of the last steps of any sale. This is the meeting where the lender, buyer and seller complete the sale and mortgage process. Once the home closes, the home officially belongs to the new buyer.
Closing costs: This term refers to the money paid at closing to the lender and consists of a loan origination fee, points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. Closing costs usually average between 2 – 6 percent of the total mortgage amount.
Credit report: Simply a report of your credit history that a lender will use to determine if you are a good risk for a loan.
Interest-only mortgage: A loan whereby you only pay the interest portion of the mortgage payment each month.
Interest rate: The annual interest on a loan. The lower your interest rate, the lower your monthly payment will be.
Lock-in: The lender’s guarantee that you will be granted a certain interest rate for a specific time period, such as 30 days before closing.
Origination fee: The fee charged by a lender for processing a loan.
Points: The amount that can be paid to a lender to lower the interest rate on your loan at closing. Each point is equal to 1 percent of the loan amount.
Private mortgage insurance (PMI): For those buyers who put less than 20 percent down on a home, lenders will require you to take out PMI, which is then added to your monthly mortgage payment. This protects the lender in the event that you default on the loan.
Title: The home document that proves ownership of the property.
Once you have mastered these terms, you will feel like a complete pro and will start to enjoy the process of buying that new home! Congratulations on the good decision you have made to join the world of homeownership!