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Buying a home is one of the biggest purchases you will ever make in your life. Most buyers will need to work with a lender to obtain a mortgage to ensure they are able to make this purchase. Your lender and settlement company will work together to make sure your settlement goes smoothly. As always, Landmark Abstract is here to help! Below are five mortgage terms to know. Read on to learn about five mortgage terms to assist you throughout the mortgage process.
Educate yourself about your closing process. This can help make the situation much more comfortable and professional for all parties involved.
Term No. 1: Annual Percentage Rate (APR)
This term reflects the cost of all credit and finances as determined by the length of a year, including the interest rate, points, broker fees, and other credit charges obligated to the buyer.
Term No. 2: Private Mortgage Insurance (PMI)
Next, we talk about Private Mortgage Insurance. PMI is typically required if a borrower puts a down payment that’s less than 20 percent of the home’s value. The charge is included in the monthly mortgage payment. This is an attempt to protect the lender from a possible default. First time homebuyers encounter this term when purchasing a home.
Term No. 3: Down Payment
Now we’re up to Term No. 3: your down payment. This is probably the most nerve-wracking term. Like many transactions involving large sums of money, the mortgage process involves a down payment – the amount a homebuyer pays in order to make up the difference between the purchase price and the mortgage amount. Some experts advise no less than 10 to 15 percent. However, lenders are stringent, therefore any amount over 20 percent of the purchase price is recommended and is required to avoid having private mortgage insurance.
Term No. 4: Closing Costs
Our next mortgage term is the most confusing. Closing costs may also be referred to as transaction costs or settlement costs and may include various fees and charges associated with finalization. These may include or be related to application fees, title examination, title insurance, property fees, as well as settlement documents and attorney charges. The Real Estate Settlement Procedures Act (RESPA) ensures that the borrower receives a good faith estimate of closing costs within three days of application from the lender, which states in detail each expected cost.
Term No. 5: Truth-In-Lending Disclosure (TIL)
Required by federal law, the Truth-In-Lending Disclosure explains all lender required costs for the loan including, but not limited to, the annual percentage rate, the terms of a loan and the amount and due dates of all payments necessary to repay the loan. This is protection for the consumer concerning mortgages.
This is an overwhelming process. We understand that! The mortgage terms that you should know are now mortgage terms that you DO know. Knowing mortgage terminology will help you understand what is going on with your lender and what is going on at the settlement table. Below, we have a few links that are here to educate you further.