Most Common Mortgage Terms to Help You Understand Your Loan
There are a lot of mortgage and real estate terms that may be unfamiliar to you and can cause some stress and discomfort during the home loan process or buying a home. But it doesn't have to be if you take the time to educate yourself on some simple terms that you will probably hear quite frequently during the home loan process.
Here are the most common terms you will hear during the home loan application and home financing process.
Points are the fees that you pay for the privilege of getting a mortgage. One point is equal to 1% of the total loan amount. This means that you could buy down the loan in order to get a better rate or price on the home.
Fixed rate vs. ARM.
This is the interest rate on your home loan over the given terms. It is fixed because it will not change over the life of the loan. It only changes if you refinance or modify the loan. An adjustable rate mortgage or ARM is the opposite. And adjustable-rate will do precisely that; adjust up or down depending on what the federal interest rate for home loans is currently. There may also be a penalty for paying off the loan early should you refinance.
Escrow and Escrow account.
This is a third party involved in the real estate process that will hold the fines and generally organize and schedule meetings, finalize documents and be the mediator between the buyer and seller. The escrow account is where earnest money funds, taxes and insurance monies are held until the final documents are closed.
This term is used to describe the decrease in principle that you owe on your home calculated using the number of years remaining on your mortgage. Typically this means that the longer you pay the less interest you will pay and the more principal you will pay as you go along.
Good faith estimate.
This is an approximation or estimate of the fees due at closing. Legally the lender must provide this to the buyer before closing.
Although not in the financing process, this term addendum may be included in your purchase and sale contract. it is an additional document that may come into play should certain circumstances happen within the process of buying the home.
Contingencies are documents that must be satisfied in order for the deal to close such as financing, inspection or the sale of another home.