Guide to Home Loan Lingo
Whether you’re a first-time homebuyer or a seasoned home buyer, understanding mortgages is an undertaking of its own.
Loan language can sound foreign when you’re first dealing with it. Both loan officers and real estate agents will use loan lingo to help guide you through the process.
To get to know home loans, it’s best to get to know the lingo first. The following is a guide and glossary of home loan terminology you will hear during any conversation about mortgages.
Adjustable Rate Mortgage (ARM)
This is one of the two types of conventional loans for a home. An adjustable rate mortgage is a mortgage with a fixed rate of interest for only a set period of time– typically one, three, or five years. With this loan, the interest rate can change over the course of the loan at different intervals. While all rates are dependent on market conditions, an ARM allows the borrower an opportunity to lock in a rate ahead of time regardless of the market conditions.
Amortization is the gradual reduction of debt over the term of a loan. It occurs through repayment of the principal payment.
Annual Percentage Rate (APR)
The Annual Percentage Rate is the yearly rate of interest to be paid back to the mortgage lender. The rate can either be a fixed rate or an adjustable rate.
The appraisal is the process of valuing a home based on an examination of the property and sale prices of other homes in the area.
Closing costs are the costs associated with closing on a house that don’t include the down payment, typically title insurance, loan processing costs, appraisal, underwriting, surveying fees, and excise tax.
A credit report is a detailed history of your credit and debt to help determine creditworthiness. These reports typically come from one of the three major US agencies– Equifax, Experian, and TransUnion.
A credit score is the formula calculated to predict an individual’s creditworthiness. The score is based on credit history, too little credit history, too many credit lines, type of credit, outstanding debt, late payments, collection judgments, and bankruptcies.
The down payment is the amount of a home’s purchase price paid upfront. Lenders typically require a specific down payment for an applicant to qualify for the mortgage.
Equity refers to how much of your home you actually own versus how much is remaining on your mortgage balance. The value of a home typically increases over time as the loan decreases– meaning that equity increases over time.
These home loans are either fixed or adjustable-rate loans insured by the Federal Housing Administration, designed to make housing more affordable.
A fixed-rate mortgage is a loan where the interest rate stays the same throughout the term of the loan. Terms of fixed-rate mortgages range from 10 to 40 years.
Good Faith Estimate
A good faith estimate is a written estimate by the lender of the closing costs– what the buyer will likely have to pay to obtain the loan. This information is provided within 3 business days from the date of your application via a disclosure form named Loan Estimate.
Interest rate is the percentage rate that a lender charges to borrow money. It’s the cost on the loans you take out to purchase a home combined with the principal. The longer the mortgage, the more interest you will end up paying.
A mortgage is the loan and supporting documentation to buy a home.
A mortgage broker is an individual or a company that facilitates the deal between borrowers and lenders.
Origination fees are the cost of applying for loans– typically including application fee, appraisal fee, and fees for all the follow-up work and other costs associated with the loan.
Did you know that CIS does not charge an application fee? That’s right! CIS accepts loan applications for free. Apply online today.
Points are the upfront fees paid to the lender at closing– one point typically equals 1% of your total loan amount. Points and interest rates are related– the more points you pay, the lower your interest rate.
The principal is the amount of money that is borrowed for the mortgage. It’s the balance owed on a loan not including interest. Principal plus interest is used to determine monthly mortgage payments.
Private Mortgage Insurance (PMI)
Private Mortgage Insurance is insurance to protect the lender in case the borrower defaults on the loan. The payments are typically complete when the buyer builds up 20% equity in a home.
Title Insurance covers the research into public records to ensure the title to home has no liens which could jeopardize the mortgage. Lenders require borrowers get title insurance on the property as collateral for mortgage transactions.
Underwriting is the process of determining the risks involved in a particular loan and establishing suitable terms and conditions for said loan.
Buying a home really is easier when you call on a team of experienced, caring professionals. CIS Home Loans, a full-service mortgage bank, has served homeowners since 1991. The personal relationships we form during the loan process are as important to us as the loan itself. It’s why Character, Integrity, and Service make up our name, CIS Home Loans.
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