When you’re interested in purchasing a home, you’ll want to brace yourself for a whole lot of words and phrases you may not fully understand. The home-buying process is complicated, but the good news is that The Home Loan Arranger in Denver, Colorado is here to help walk you through it from start to finish.
Realtors and lenders work together to help you accomplish your home buying goals. As a trusted mortgage lender for realtors, The Home Loan Arranger is prepared to offer you a hassle-free new home loan experience by eliminating all of your worries.
We’ve put together a glossary for a few of the mortgage loan terms that you can use to prepare yourself in advance, or to look back at when all the words are swirling around in your mind:
Annual Percentage Rate (APR)
Annual percentage rate is the interest rate you’ll pay on your loan each year plus any additional lender fees. Two interest rates may be listed when you shop for a loan, with the larger number being your APR, as it includes fees.
An appraisal fee is the cost of a home appraisal of the house you own or plan to buy. Mortgage loaners require an appraisal – which provide an independent estimate of the value of your property – before you sign on a home loan.
A balloon loan means the loan has a larger-than-usual, one-time payment, commonly at the end of the loan term. If you cannot pay the balloon amount, you may need to refinance, sell your property, or face foreclosure.
Closing costs consist of settlement costs and fees you pay to a lender in exchange for finalizing your loan. The specific costs depend on your location and property type. They often equal 3-6% of the total value of your loan.
This five-page document provides the final terms of your loan. It includes the loan terms, projected monthly payments, and the closing costs to be paid.
Debt-To-Income (DTI) Ratio
Your DTI is equal to all of your monthly debt payments divided by your gross monthly income. Mortgage loaners in Denver, Colorado and beyond use this number to measure your ability to manage monthly payments to repay the amount you request to borrow. Lenders usually cater to applicants with a DTI of 50% or lower.
A deed is a physical legal document that proves who owns the property. To sell a home, you and the buyer must sign this document and file it with the local county to prove transfer of homeownership.
A down payment is the amount of cash you pay for the home at closing and is generally listed as a percentage of your loan value. The majority of loans require some type of down payment, but while many people think you must have a 20% down payment to buy a property, you can actually purchase one with as little as 3% down or with a government-backed loan that may even allow no down payment. However, having 20% down allows you to avoid paying private mortgage insurance (PMI).
Earnest Money Deposit
An earnest money deposit is an amount of money paid to the seller early on in the buying process to show you are serious about buying. The amount is typically equal to 1-3% of the property’s value. The deposit is held in an escrow account and then goes toward your down payment at closing.
An escrow account is the place where a title company or lawyer holds onto things like money for property taxes or homeowners’ insurance until the buyer and seller complete the deal. A lender may add escrow payments to monthly mortgage dues along with principal and interest payments.
A fixed-rate mortgage will have the same interest rate throughout the term or life of the loan. The two most common loan terms for a fixed-rate are 15 and 30 years. A fixed-rate protects homeowners from dealing with a potential rise in interest rates down the road.
A home inspection conducted by a professional inspector will tell you about specific problems in the home. The inspector will test things such as the heating and cooling system, light switches, and appliances, and will then present you with a list of what needs to be repaired or replaced in the home. Most mortgage loaners do not require an inspection as a condition of getting a loan, but it is a wise measure to take to ensure the property does not have any dire issues.
Preapproval and prequalification
A preapproval document states how much you can afford to take out in a home loan. To apply for a preapproval, a mortgage loaner will need information, such as your credit score, income, and assets. The lender will then use this information to determine roughly how much you qualify for in a property. Prequalification is different as it usually does not include asset and income verification, thus making it less official than a preapproval. It is comparable to getting a quote or opinion of how much a lender may give you for a loan rather than an official document.
The balance of the loan taken out and the amount on which the interest payment is decided. Your monthly payment includes a portion of that principal. The principal balance will shrink as you make payments on the loan.
Title and Title Insurance
A title is proof that you own the home and includes the names of those who own the property as well as any liens on the home. Title insurance is a common closing cost and protects a homeowner against outside claims to the property. It is a single payment at closing that protects a homeowner as long as they own the house.
Learning some of the common mortgage terms is a great first step to better understanding your home loan. If you’re ready to put your knowledge to work or have any questions, we’d be happy to chat.
Contact The Home Loan Arranger in Denver, Colorado at 303-900-3869 or Jason@TheHomeLoanArranger.com today.
Or apply for a consultation online and we’ll be in touch.