When you are shopping for a mortgage there are a lot of considerations. The last thing you need is unfamiliar lingo bogging you down. When you begin the process of buying a new home, make sure you use this mortgage terminology guide to help you navigate the process.
1. Fixed-rate mortgage: When you have a fixed-rate mortgage, the interest rate on your loan stays the same for the life of the loan. Which means your monthly payments will not change. This predictability is beneficial for budgeting your expenses but a fixed-rate loan sometimes comes with a higher interest rate as compared to other loans.
2. Adjustable-rate mortgage (ARM): Your payments on an ARM will stay the same for a set period of time but they will change annually according to federal interest rates. An adjustable-rate mortgage is unpredictable in the long term but the initial interest rate is often lower than a fixed-rate loan.
3. Earnest Deposit – When you make an offer on a house, you submit earnest money that goes into escrow. The earnest money is held by a neutral third party. Those funds are then disbursed when the deal is finalized.
4. Escrow: You may also have to pay into an escrow account if your lender requires you to escrow for real estate taxes and homeowners insurance. That money is then used to pay the bill when it’s due.
5. Private Mortgage Insurance (PMI): If your down payment is less than 20 percent of the purchase price, your lender may require private mortgage insurance. You typically pay PMI along with your mortgage but it drops off once your loan balance reaches a certain marker (typically 80 percent of the original loan).
6. Closing costs: At your closing, you will be required to pay for various services associated with your purchase. This includes paperwork processing and credit reports. To avoid any surprises, carefully review the loan estimate form you receive from your lender. This document is typically sent to borrowers within three business days of receiving a loan application. It will also outline your estimated closing costs.
Understanding these and other relevant mortgage terminology can help expedite the loan process. This gives you the ability to focus on finding the perfect home.
If you are preparing for the home buying process and shopping for a home loan, contact Title Mortgage Solution today. Our experienced team will help you navigate through the process and take the time to educate you every step of the way.