Are you looking to buy your first home? Is this your first time buying a home on your own? You have nothing to worry about. All homeowners, no matter how experienced they are with the homebuying market, are learning something new every day about how mortgage and real estate work.
Before you apply for a mortgage, it could prove to be helpful if you do your research that way you have somewhat of an idea regarding how the process will work. Some homeowners are unfamiliar with very common terms mortgage lenders use, so we’re here to define and discuss them for old time’s sake.
An appraisal is done even before your mortgage is approved. An appraisal looks at how much your home is worth. This is required to do before even signing off on a loan. The point of conduction an appraisal is to ensure you are being loaned just enough and does not exceed the total value of your home.
Annual Percentage Rate (APR)
This term refers to the interest you will be paying on your loan which could include additional lender fees. Should you miss a payment, your APR could go up very high and your monthly payment will require much more than before. This is one of two interest rates you’ll see on your billing.
Adjustable-Rate Mortgage (ARM)
This is a kind of loan that offers the possibility of a different interest rate based on how the housing market looks. When you first sign up for an ARM, you will be granted a short period of fixed interest, so it will not change immediately from one month to another. This could even last for years. Sometimes, this short period can last up to a decade and after a decade, it is subject to change.
Assets, just like in legal matters, refers to whatever you own or anything you have that has cash value. Some assets include a savings account, a 401k, stocks, bonds, or even mutual funds. A lender will ask to verify your assets when applying for a mortgage, which will require you to provide documentation.
Closing costs can be seen as a down payment. Closing costs are required once you have a mortgage approved and before you move into your home. These costs may include inspection, appraisal fees, and loan origination fees. These costs usually account for 3%-6% of the total cost.
During closing costs, a closing disclosure will be given. These documents will disclose everything regarding your mortgage, what exactly you will be paying for, interest, and others costs, if necessary. These documents require signatures before signing off on your loan.
A debt-to-income ratio is a breakdown of how much you owe and how much you earn. Brokers look at this to make sure you can afford the home you are trying to get a mortgage for. Finding a loan might be difficult if your DTI is too high. Your DTI should be low enough or kept below a certain level that way you have not declined a loan.
Some people who are granted a mortgage will look into an escrow account, which is where property taxes and homeowners insurance will be stored that way they don’t have to pay taxes all at once.
As opposed to an adjustable-rate mortgage, this kind of mortgage has the same interest throughout the duration of a loan. Whatever rate you are given in closing costs is the same rate you’ll be paying for as long as you keep your mortgage and your home.
Loan-to-value is a metric, in addition to the debt-to-income ratio, that mortgage brokers use to determine whether you can pay a mortgage. This metric is calculated by dividing the amount borrowed by the value of the house.
Private Mortgage Insurance (PMI)
This kind of insurance protects a lender in the event that you default on your loan, although this is an additional cost you’d have to pay alongside your mortgage and interest rate. You can opt-out of this insurance once you have reached 20% equity on your property.
Learn More with The Professionals at Rocky Mountain Mortgage Company
Buying a house will always require time and dedication on your end. With that being said, the process can be overwhelming at times. With the professionals at Rocky Mountain Mortgage Company, you will never have to worry knowing your future home is in the right hands. Contact us today to learn more about the process.