Even though weshouldknow certain terms, theres no shame in a quick refresher of their definitions.
Mortgage
We told you, were covering the most basic of basics.
The borrower (homebuyer) agrees to repay the loan over a specified period, often with interest.
Interest rate
The interest rate is the percentage charged by the lender on the mortgage loan.
It affects the overall cost of borrowing and determines the monthly mortgage payments.
Interest rates right now remainalarmingly high.
In other words, you’re able to think of mortgage points like prepaid interest.
Each point the borrower buys costs one percent of the mortgage amount.
Amortization
Amortization is the process of paying off a mortgage over time through regular monthly payments.
It includes both principal (the original loan amount) and interest.
Pre-approval
A mortgage pre-approval is a preliminary assessment by a lender of a homebuyers creditworthiness.
These costs may include appraisal fees, title insurance, attorney fees, and more.
Homebuyers should budget for these additional expenses during the buying process.
This ensures that both parties fulfill their obligations before the transaction is completed.
Appraisal
An appraisal is an evaluation of the propertys value by a licensed appraiser.
Lenders usually require an appraisal to ensure that the propertys fair market value aligns with the loan amount.
(This is a very good idea for first-time home buyers.)
Your mortgage lender or mortgage broker must deliver the GFE to youwithin three daysafter accepting your mortgage loan program.
Home inspection
A home inspection is a thorough examination of a propertys condition by a professional inspector.
It helps identify any potential issues or defects that may affect the propertys value or safety.
Title
Title refers to legal ownership of a property.
Common contingencies include home inspection, appraisal, and financing contingencies.
Equity
Equity is the difference between the propertys market value and the remaining mortgage balance.
As homeowners make mortgage payments, they build equity in their property.
Its designed to protect the lender in case youre unable to pay your mortgage.
Homeowners insurance
Mortgage insurance is often confused with homeowners insurance, but the two serve different purposes.
Home mortgage loansinsured bythe Federal Housing Administration are referred to as FHA or FHA-Insured Loans.
However, the FHAdoes notlend money or plan or construct housing.
Homebuyers in such areas are typically required to pay HOA fees.
Buying your first home may seem like a daunting financial featmake it less painful by avoidingthese mistakes.
