Buying a home and securing a mortgage is intimidating enough, and adding a few complicated words and terms to the mix can make it even trickier.
So for home-buying novices, or for those who want a refresher, here’s a cheat sheet – a quick guide for translating some of the most common mortgage terms:
Adjustable-rate mortgage (ARM): With this type of mortgage loan, the monthly principal and interest payment may increase or decrease during the life of the loan.
Annual percentage rate (APR): A measure of the total cost of a mortgage loan, including loan fees and costs, expressed as a yearly rate. Borrowers can use the APR to compare loans of different types and loans offered by different providers.
Appraisal: A report by a licensed or certified appraiser that estimates the market value of a property.
Closing costs: Fees paid for, at or prior to closing your loan. They generally vary by geographic location and type of property and may include costs to cover the transfer of ownership at closing. Review the Good Faith Estimate (see below) for a list of expenses that are considered part of the closing costs.
Escrow: An account established with the lender at the time of closing, and paid into monthly by borrowers along with their principal and interest payments, for the payment of real estate taxes, hazard insurance, private mortgage insurance and flood insurance.
Fixed-rate mortgage: With this type of mortgage loan, the monthly payment and interest rate stay the same throughout the term of the loan.
Good Faith Estimate (GFE): A written estimate of all fees paid before closing, closing costs and any escrow costs that lenders must provide to buyers within three days of a mortgage loan application.
Home inspection: A certified home inspector evaluates the structural and mechanical condition of a property.
Pre-qualification: An initial determination, typically based on information that you verbally provide and a credit check, of whether you would qualify for a mortgage loan. It provides you with an estimate of how much you can borrow to buy a home.
Private mortgage insurance: Insurance to protect the lender against loss arising from loan default. It is usually required if the home buyer has less than 20 percent for a down payment and is typically paid for with monthly payments.
Title insurance: Insurance to protect the lender (lender’s policy) and owner (equity policy) against loss arising from disputes over ownership of the property.
There are lots of other terms you may hear as you explore the mortgage process. If you have questions, you may want to go to the experts – mortgage bankers who can help you understand the ins and outs of “speaking mortgage.”
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