If you’re in the market for a new home most people will need a home mortgage and it’s important to have a basic understanding of the mortgage terms you’re likely to encounter. A mortgage is essentially a loan that is used to purchase a home or property. The terms of the mortgage will dictate how much you borrow, the interest rate you’ll pay on the loan, and the duration of the loan.
It’s important to understand the difference between fixed-rate and adjustable-rate mortgages, as well as key terms like down payment, points, and closing costs. By taking the time to learn about these terms, you can make informed decisions about your mortgage and ensure that you get the best deal possible. This list of terms was put together by our preferred lender Silverton Mortgage.
Pre-Qualification: An estimate of how much a lender may be willing to lend based on preliminary information from the borrower.
Pre-Approval: The amount a lender would be willing to lend based on initial documentation of your income.
Earnest Money: Deposit made by the buyer when the contract for the sale is signed to prove that they are seriously pursuing the purchase.
Due Diligence: Actions that a responsible buyer should take to evaluate the property they’re buying, including having a home inspection.
Contingencies: Clauses in a purchase contract that allow you to cancel if certain conditions aren’t met, like if it doesn’t appraise for the contract price, or the inspection reveals major issues.
LTV (Loan To Value Ratio): The amount of money you are borrowing compared to the value of the home (example: a 10% down payment is a 90% LTV).
DTI (Debt To Income Ratio): The percentage of your monthly debt and expenses.
Fixed vs. ARM: A fixed rate mortgage has a set interest rate for the entire term of the loan, whereas an adjustable rate mortgage (ARM) means that your interest rate may go up or down based on changes in the market.
Appraisal: When an independent third party evaluate a home to determine its current market value.
Closing Costs: All the fees and expenses associated with closing on a home, usually around 3% of the cost of the home.
Escrow: A process where additional funds are collect with your mortgage payments, then your lender uses them to pay things like property taxes and home insurance premiums on your behalf.
Monthly Mortgage Payment: Principal, interest, taxes, mortgage insurance, fees, and all the costs included in your monthly mortgage payment.