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Common Mortgage Terms

by Jon Smith, CRB, CRS, GRI

If you are purchasing a new home, most likely you will be researching a mortgage as well. This can be a confusing process, especially if you are first time homebuyer. You will hear many different terms when dealing with lenders, agents and brokers. Below are some of the common terminology used so you can become familiar when going thru home buying process.

Annual Percentage Rate (APR): The APR for your home loan is an annual cost that includes the interest rate quoted by your mortgage company plus additional home loan costs such as origination fees and points.  Required by law, this amount is to be disclosed to the homeowner by the lender under the federal Truth in Lending Act. This amount includes up-front costs paid to obtain the loan but does not include the PMI,  title insurance, appraisal, and credit report.

Closing Costs: These are the expenses aside from the price of the property that are incurred by buyers and sellers when transferring ownership of a property.  These costs include origination fees, property taxes, charges for title insurance, escrow costs, appraisal fees etc.  Many times these costs are shared by the buyer and the seller.

Escrow: During the home loan process, a neutral third party known as Escrow holds documents and money (including earnest money deposits) for safekeeping until the real estate transaction is complete.

Points: The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount. This means that, to lower your interest rate by one point on a $300,000 mortgage, you’ll need to pay an additional $3,000 at closing.

Private Mortgage Insurance (PMI):  If you are purchasing a home and you do not have a the traditional 20 percent down payment,  lenders will require you to carry private mortgage insurance. Private mortgage insurance will usually require an initial premium payment and may require an additional monthly fee depending on your loan’s structure.

Title Insurance: This type of insurance protects both the buyer and the seller against legal issues that may arise with a  home’s title. If a problem occurs, the title company pays the associated legal fees to correct the situation.   

There are  many different terms out there that will come up when you buy a home and apply for a loan. If you are ever confused or have any questions about a particular term or contract be sure to ask your realtor or real estate attorney for clarification before signing any legal documents.

Avoid Home Loan Headaches: Do Your Homework First!

by Jon Smith, CRB, CRS, GRI

“I want to buy a house, but I don’t know much about home loans. How do I get one? Where do I go to find out more?”

I get these questions often from potential buyers who are confused--and often overwhelmed--by the home mortgage process. Getting a home loan doesn’t have to be an ordeal if you do your homework first. A qualified real estate agent can assist with a list of local lenders and information resources to make your life easier. So just ask!

I recommend that you do two things right away, even before you start house hunting:

•    Get your credit reports from the “Big Three” credit reporting agencies. Lenders will review these reports, and you need to know what they contain--and where you stand. Don’t be surprised by “red flags” when negotiating with a lender. Take action beforehand to correct or explain the negatives.

Under Federal law, you’re entitled to one free report from Experian, Equifax and TransUnion each year. Visit www.annualcreditreport.com to learn more.

•    Get pre-qualification from one or more lenders on a possible loan amount. That way you’ll have a good “guesstimate” of the loan amount you would qualify for--and how much house you can afford. Once you’ve chosen a lender, you can even get pre-approved for a loan. Knowing your mortgage limit up front will be a tremendous help in your search for the right home.

So how do you find out about mortgage loan basics and the best way to work with lenders? One resource I like is Looking for the Best Mortgage, a free, easy-to-understand booklet you can download from the U.S. Department of Housing and Urban Development. You’ll get a “shop, compare, negotiate” strategy:

•    How to get loan information from more than one lender
•    How to get rate and fee information that you can compare
•    How to get your “best deal”

This publication also includes a glossary of common mortgage loan terms and a handy worksheet you can use when talking with lenders. The worksheet is great. You’ll find yourself saying, “I didn’t even think of that!” And that’s why it’s such a valuable resource: It keeps you organized and on point.

Bottom line: Do your homework. Learn what you need to know about your home mortgage options up front--and get approved quickly for your new home when you’re ready to buy.

Want to know more about home mortgages? Just ask your real estate agent. We’re always happy to help!

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Contact Information

Photo of Jon Smith, CRB, CRS, SRES, SFR Real Estate
Jon Smith, CRB, CRS, SRES, SFR
Iowa Realty
3521 Beaver Ave.
Des Moines IA 50310
515-240-2692
Fax: 515-453-6404
 

 

 

Licensed in the State of Iowa