As you go through the process of getting a mortgage through Better Home Financial, you may start to hear some jargon you may be unfamiliar with. Not to worry though, we’re going to cover some basic mortgage lingo you need to know in order to feel comfortable as we help navigate you through a refinance or purchase of a new home!
Adjustable Rate Mortgage (ARM): ARM’s are mortgages that have an initial fixed-rate period in which the rate stays the same, but thereafter the rate becomes variable, meaning it changes depending on market conditions. The fixed-rate period can be anywhere from 5-10 years long however, and provide lower rates than a pure fixed-rate mortgage. This makes it a potentially great choice for first time home buyers as the savings can be big, especially if they don’t plan on staying in their house for longer than the fixed-rate period of the ARM. Since 2008, ARM's have unfortunately been associated with interest only payments, negative amortization, balloon payments and stated income loans, and subsequently a cause of the Financial Crisis. As it is, ARM's do not have these features and can be a great way to save, but Better Home Financial does not recommend first time home buyers enter into these types of loans. As with ANY mortgage, it's imperative that you work with a trusted broker that helps you understand all the risks involved with any debt decision!
Amortization: The schedule breaking down the of payback your loan. This usually is shown in the form of a spreadsheet, showing every monthly payment until the end of the loan, and detailing how the principal and interest is paid during that period as well.
Appraisal: An estimate of a home’s current market value
Closing: This is the end of the real estate transaction process when legal documents are all signed and funds are disbursed.
Closing Costs: These are the additional fees that are associated with buying a home, such as appraisal fees, processing fees, underwriting fees, and title insurance. Luckily for you, at Better Home Financial we work with lenders to make sure you don’t have ANY upfront costs in order to close your loan!
Credit Score: This is a number that represents your creditworthiness, or how likely you are to pay back your debts. This is based on a myriad of historical factors as determined by credit agencies.
Deed: The legal document that transfer property from one owner to another.
Down payment: The amount of money you choose to pay upfront for your home. Traditionally, the higher the down payment, the lower the rate of the loan!
Escrow: This separate entity collects funds from parties involved in mortgage process and makes sure all funds get exchanged and reach their appropriate accounts. Escrow companies are ultimately responsible for paying buyers and sellers, commissions, broker fees, termite inspection, hazard insurance and other miscellaneous bills and fees.
Equity: The amount of your home you actually own, compared to your lender. When you have a mortgage, you never fully own 100% of the home, but as you pay it off, your equity increases and get closer to full ownership once it is fully paid.
FHA Loan: These are home loans that are insured by the Federal Housing Administration. These types of loans are handy for borrowers who don’t have a large sum of money for a down payment, allowing us to get our clients affordable mortgages with as little as 3.5% down payments.
(To see if an FHA loan is right for you, use our FREE FHA Home Purchase Qualifier here.)
To see the final part of our list of top mortgage lingo, check out Part 2 here!