Nine Mortgage Terms You Must Know
Purchasing a home comes with a varying set of stressors, for both the first time home buyer to even the vetted real estate shopper. An always perplexing component to buying a home is the terminology that comes with it; however, becoming familiar with said terminology puts the home buyer in a position to best negotiate their way through the home buying process, and ensures the best possible home loan and long term financial outcome.
Adjustable Rate Mortgage (ARM): an Adjustable Rate Mortgage indicates that the interest rate you are paying on a home can vary depending on the treasury bill rates; these can be low or high depending on current economic standings. ARMs can be beneficial in the short term, however if you are looking for stable and long term lending, fixed rate mortgages could be a better option.
Annual Percentage Rate (APR): the Annual Percentage Rate is the annual rate that is charged when you take out a loan to purchase a home. APR is also dependent on your credit history and score. Ensure your credit score is in tip-top shape before buying a home by utilizing multiple credit score reports to make sure you receive the best APR possible. Giving yourself adequate time to fix any errors on your credit report before applying for a loan will also secure a better loan option.
Closing Costs: as implied by the name, closing costs are the fees and charges paid at closing of the purchasing of a new home. Common closing costs include credit reports, survey fees, various processing fees, pre-paid interest, etc. In the current market, closing costs can likely be negotiated down; talk to your realtor to see what your options are.
Escrow: an escrow is a contractual arrangement in which a third party, typically a mortgage company, is in charge of payments and documents by those involved with the home buying transactions.
Fixed Rate Mortgage (FRM): a Fixed Rate Mortgage is a mortgage loan in which the interest rate on the loan remains the same throughout the entirety of the home owning process. However, with the interest rate remaining the same, the length of the loan is typically longer on FRMs.
Good Faith Estimate (GFE): legally required to be prepared by the mortgage lender involved with the loan, as required by the Real Estate Settlement Procedures Act, a Good Faith Estimate is a list of every cost affiliated with the loan you are pursuing.
Lock-In: a lock-in guarantees that, for a specific amount of time (generally 30-60 days), the borrower is promised a certain interest rate on a loan by the mortgage lender.
Private Mortgage Insurance (PMI): if your down payment is less than 20 percent of the sale price of the home, banks will require the home buyer to have Private Mortgage Insurance. PMI protects the bank if the buyer fails to make payments.
Title Insurance: Title Insurance is used to protect both the lender and the home buyer if there is a property ownership dispute, and is required by most lenders. Title Insurance is seen almost exclusively in the United States, because the majority of the U.S. does not have a land registration system in place.
When buying a home, having knowledge of the world of real estate is critical to looking out for your best interest financially. Familiarity with terminology, as well as research throughout the home buying process, positions you to be well versed in the necessary language that comes with buying a home.
The job of a professional real estate agent is to help and improve your overall home buying experience. Contact Summit Sotheby’s International Realty today for answers to any of your real estate questions!