Mortgage terms | the basics
Buying a home can be daunting with all of the jargon and terms. Here are five basic terms that will be helpful to you during your loan shopping and purchase.
ANNUAL PERCENTAGE RATE (APR) – The cost of all credit and finances as determined by the length of a year, including the interest rate, points, broker fees, and other credit charges obligated to the buyer.
CLOSING COSTS – Also referred to as transaction costs or settlement costs. These may include various fees and charges associated with finalization. Closing costs can relate to application fees, title examination, title insurance, property fees, settlement documents, and attorney charges.
DOWN PAYMENT – Just like purchasing a new car, the process typically involves a downpayment. Larger sums of money are involved with most mortgages. The downpayment is the amount paid by the homebuyer to make up for/lower the gap between the purchase price and mortgage amount. It is generally advised this amount be no less than 10% to 15%, with the average magic number being 20%, of the purchase price. Avoiding Private Mortgage Insurance (PMI) and lower interest rates are key goals in the downpayment process.
PRIVATE MORTGAGE INSURANCE (PMI) – when a homebuyer places less than 20% of a downpayment on their home purchase, PMI is typically required. This insurance protects the lender in the instance of possible loan default. PMI is an added expense tacked onto the monthly mortgage payment and can take years to pay down.
LOAN ESTIMATE (LE) – The Consumer Financial Protection Bureau, or CFPB, requires lenders to issue a Loan Estimate within three business days of the mortgage application. The Loan Estimate details the loan terms and also estimated closing costs.[/vc_column_text][/vc_column][/vc_row]