Mortgage Terms You Should Understand
Buying a home can be intimidating if you are not familiar with the most common phrases used throughout the process. But not to fear: here’s a list of home-buying lingo to bring you up to speed.
Fixed-Rate Mortgage
Mortgage rates are discussed when you meet with a broker. A fixed-rate mortgage is a loan that has an interest rate which will remain the same for the life of the loan. The most popular is the 30-year loan because it usually makes your payments the lowest.
Adjustable-Rate Mortgage
On the contrary, the interest rate on an adjustable-rate mortgage can change from year to year. You’ll want to discuss the pros and cons of both a fixed mortgage and an adjustable mortgage with your broker.
Private Mortgage Insurance (PMI)
The good news is that you don’t need to put 20 percent down to purchase a home. However, if you choose to move forward with a Federal Housing Administration (FHA) loan, you’re required to purchase private mortgage insurance. PMI is a type of insurance that reimburses the lender if you default on the loan.
Escrow
You’ll hear this term once you put an offer on a house. Escrow is defined as the holding of funds by a neutral third party prior to closing.
Contingency
“We will only move forward with the sale as long as x, y, and z happen.”
A contingency can be placed by either the buyer or the seller. It’s a provision in the contract stating that some or all of the terms of the contract will be altered or voided by the occurrence of a specific event.
Closing Costs
You’ve made it! It’s closing time. But with the closing comes costs. By definition, closing costs are all transaction charges that homebuyers or sellers need to pay at the close of escrow when the property is transferred. Typically, closings costs range from 2 to 5 percent of the purchase price.
These are just a handful of terms you’ll need to understand the meaning of when applying for a mortgage. We’re here to help and can recommend some good lenders in our area, so please contact us if you have any questions.
