Find helpful tips and information for your mortgage process

Before you buy or sell a home, it is important to know the meaning of certain terms that might be brought up. Here is a list of 15 common mortgage terms that might come up in conversation in the home buying process:

1. A Fixed-rate mortgage

Different from an ARM, a fixed-rate mortgage has the same interest rate throughout the entire payment of the loan. A mortgage broker can help assess whether this type of loan is better for you compared to the ARM loan.

2. Ability-to-Repay Rule

This is a judgment call made by most mortgage lenders to determine that you are able to pay back the loan. This requires taking a look at the credit history, income, assets, and employment of the borrower.

3. Adjustable-Rate Mortgage (ARM)

An adjustable-rate mortgage or ARM, the interest rate applied to the mortgage loan will fluctuate as you continue to pay off the loan. Initially, the interest rate will remain stagnant. Then every year or sometimes every month depending, it will change.

4. Amortization

This term refers to the allocation of payments over several different periods. This can be like paying off a loan over time with equal installments.

5. Annual Percentage Rate (APR)

APR is defined as the annual cost a borrower has to pay on a loan, including fees. It is similar to an interest rate in that it is presented as a percentage. What makes it different from interest is that APR represents additional charges and fees. These charges can include mortgage insurance, closing costs, and loan origination fees.

6. Appraisal Fee

An appraisal fee is required to have an appraiser look at a home and determine its value. Having an appraisal is almost always required, making this fee required as well.

7. Closing Disclosure

This is a five-page form explaining the mortgage loan in great detail. This document should include closing costs, purchase pricing, loan fees, interest rate, estimated real estate taxes and insurance, and other expenses.

8. Co-signer vs. Co-borrower

A co-signer is in charge of repaying a loan should the main borrower fail to do so. The cosigner is usually someone with a higher credit score that can be trusted with the responsibility of repaying a loan. A co-borrower has a little more responsibility and is equally liable for repaying a loan. This gives the lender some assurance since more than one income goes towards paying back the loan. Those who have co-borrowers are more likely to qualify for a larger loan since they are deemed less risky to lenders.

9. Debt Ratio

Also known as the debt-to-income ratio, your DTI is the amount or percentage of your monthly income that is applied to your debt. Lenders use this to determine a borrows ability to pay back debt and assess the risks.

10. Down Payment

A down payment is an initial amount of money paid before any loans are involved. This will cover a portion of the overall cost and shows you have already contributed to the house.

11. Earnest Money

Earnest money is similar to a down payment in that it is a preliminary payment in the home buying process. However, unlike a downpayment, this money does not go to the overall payment of the house. It is instead used as a monetary confirmation of the contract.

12. Equity

Equity is a value you get when you subtract the amount you have left on your mortgage loan from the current value of your home. Ex. Mortgage Loan - Home Value = Equity.

13. Loan Estimate

A loan estimate usually contained three pages of information describing the loan you have requested. This form is delivered soon after you apply for a mortgage and has details on interest rates, payments, and more.

14. Preapproval

A pre-approval is a way to evaluate a borrower to see if they are able to receive a pre-qualification offer. This early evaluation is given by a lender to a borrower and can give the borrower an edge in the home buying process. Getting a mortgage pre-approval can be a huge benefit in a seller’s market.

15. Refinance

Refinancing a home is how current homeowners change the value of their mortgage. With time and use, the mortgage value of a home can decrease, making the cost lower for the homeowner. This will require an appraisal to determine the new cost of the home mortgage.

How Can We Help?

There are so many different terms and jargon when it comes to buying a home. Learning all of the terms can be stressful, making the home buying process intimidating when alone. To help mitigate the stress, Dee Ayers is here to help you. Having someone there who already knows all the terms and processes takes a heavy weight off your shoulders. Contact Dee today to partner with an experienced professional that wants to help.

Content presented here is for informational purposes only. Every situation is different and you should consult with a mortgage professional before making any financial decisions. We will be happy to schedule a consultation to discuss your specific situation and needs.

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