A home will most likely be the biggest purchase you will ever make. Knowing this, it’s important to understand everything that goes into purchasing a new home. There are some mortgage terms that everyone should completely understand before buying a house. We’re here to go over these, and help you understand them, so you can be an informed buyer when purchasing your new home.
What is a Mortgage?
Before we get into the terms, let’s quickly go over what a mortgage is exactly. A mortgage is a type of loan that you use to buy or refinance a home. If you are not paying for your home in full out of pocket, you will most definitely need a mortgage to become a home owner.
You may be wondering how a mortgage is different from a loan. There are many different types of loans, and a mortgage is a type of loan used to finance property. Through using the property as collateral, a mortgage is a secured loan. Therefore, if you were to stop making payments on your mortgage, the lender will take possession of your home, a process also known as foreclosure.
Mortgage Terms You Should Know
- Adjustable Rate Mortgage (ARM) is a type of mortgage that has an interest rate that changes over time, usually based on a market index.
- Amortization is when you make regular payments over time to lower the amount owed on your mortgage. With every mortgage payment you make, some of the money goes towards reducing the loan amount, while some of it goes towards the interest. There are a few ways to avoid most of your money going towards the interest when you begin making mortgage payments. One way is to make a larger down payment. This allows you to have a smaller loan, and therefore less interest to pay. Another way to make sure your money is going towards your loan is to make extra payments. Just be sure to check that you won’t be penalized for prepayments, and that the extra payments will go towards your principal. Lastly, you could also choose a shorter loan. While choosing a shorter loan may cost you more monthly, it will save you a lot of money over the life of the loan!
- APR, or annual percentage rate, is the interest rate for a whole year. You always want to check to see what the APR is, because even if you choose a mortgage with a low rate, if the APR is high, you will incur additional costs and fees you may not have realized by just looking at the interest rate.
- Closing Costs are the fees you and the seller pay during closing. These fees include origination fees, title search, and title insurance premiums.
- Conventional Loan is a mortgage that’s not guaranteed or insured by the federal government.
- Down payment is part of the purchase price that you, the borrower, will pay upfront. The higher your down payment is, the less risky your loan will be. Typically, if you put down any less than 20%, you will also have to pay for mortgage insurance.
- FHA Loan is a mortgage that’s insured by the Federal Housing Administration.
- Jumbo Loan is a loan that’s larger than the conventional loan limit. This loan is higher-risk.
- Preapproval is when you find out how much money you are approved to borrow to buy a home. Lenders will look at your income, credit score, and assets before they preapprove you. Lenders look at this to determine how much you can borrow and what your interest rate would be.
Contact Our Team Today!
If you’re ready to begin your search for your new home, we’d be happy to help you begin that journey. We understand that the home buying process can be overwhelming, especially when learning all new terms. If you have any questions about the terms listed above, or any other ones you come across, Team Crescenzo will be happy to assist. We’re more than happy to provide you with the mortgage experience you deserve. Give us a call today at (843) 352-8581.