LINGO YOU’LL HEAR DURING THE LOAN PROCESS

If you are buying your first home, you will need to learn some of the jargon before you get started. Here are the most important terms you will need to know ahead of the loan process.

Appraisal

You will hear the word appraisal earlier in the process. An appraisal is a 3rd party estimation of the value of the property. The analysis will be highly accurate and take into consideration the comparable sales in your neighborhood. This will give the lender an understanding of the total value of the home they will be lending against.

Closing Costs

Closing costs will be the extra fees associated with your transaction that don’t include the property’s price. Closing costs typically include an origination fee, property taxes, charges for title insurance and escrow costs, appraisal fees, etc. These can vary depending on where the home is located and what vendors you use.

Credit Report

Your credit report will be ordered during the application process. This report is made up of a merged report between all 3 of the credit bureaus Transunion, Equifax, and Experian. It includes your entire credit history, including:

  • Payment history
  • Account age
  • Credit limit used
  • Derogatory remarks

Discount Point

Discount points are added fees paid at closing to decrease your overall interest rate. One point is equivalent to 1% of the loan amount. If you had a loan amount of $450,000, one discount point would cost you $4,500 at closing.

Escrow

Escrow is a 3rd party service that allows you to transfer funds safely during a real estate transaction based on a condition. All of the funds get deposited into the escrow account, and once the transaction is closed, the funds will be disbursed to the correct parties.

Interest

Interest is the fee that the lender will charge you for borrowing money. This is different than the origination fee because it is collected over the life of the loan.

Origination Fee

The origination fee is paid to the lender for the processing of your loan. This is usually stated in the form of points. One point is one percent of the total loan amount.

Principal

The principal is the loan’s unpaid balance and makes up one of the four parts of your monthly mortgage payment. As you pay your mortgage each month, the principal balance will decrease. Eventually, once your principal has been paid completely, you will own your home free and clear.

Recording

Recording is the final milestone of the loan process. This is when the registrar’s office has noted the deed, thereby making it a part of the public record.

It’s essential to use a lending team that is willing to educate you about the entire process. If you are ready to take the first steps, click here and speak with one of our expert mortgage loan officers. They will hold your hand throughout the entire experience and make sure you leave their office feeling ready to go.

For a more comprehensive list of mortgage terms, click here.

COMMON FAQS DURING THE LOAN PROCESS

After helping thousands of homeowners, we have heard every question out there. We have compiled the list of the most commonly asked questions about the home loan process.

Do I Need 20% Down To Buy A Home?

You do not need a 20% down payment to buy a home. While putting 20% down will help you avoid paying mortgage insurance, it is not a requirement of any loan program for a primary residence. Depending on the loan program you go with, you can put zero down. These programs have certain limitations, and it is important to speak with a licensed mortgage professional about what is right for your specific situation.

What’s The Difference Between Pre-Qualified & Pre-Approved

When you first meet with a loan officer, they will issue either a pre-approval or pre-qualification. They sound similar but are not the same.

Pre-Qualification

When you are pre-qualified, it means that your loan officer has looked at your initial documentation and given an estimation of your potential qualification. This is not a guarantee of approval and should be looked at as the “first step.”

Pre-Approval

When you are pre-approved, it means that all of your documentation has been verified and has been put through underwriting. Your credit has been checked, and you have been issued a pre-approval letter. This will allow you to shop for a home and get under contract smoothly.

How Much Home Can I Afford?

Your loan officer will determine exactly how much home you can afford. Depending on the loan program you choose, you will know your max DTI (debt-to-income), and from there, you will know what the most home you can afford is.

Make sure you explain your maximum comfortable monthly payment to your loan officer, as this will ensure you don’t get stuck in a mortgage you can’t afford just because you qualify for it.

What Does My Mortgage Payment Include?

Your monthly mortgage payment can be broken down into four key components known as PITI.

Principal:

Principal is the unpaid balance of the loan. This decreases your balance monthly as you make payments.

Interest:

Interest is what the lender charges to borrow the money.

Taxes:

Taxes are determined by your local county and paid to them directly from your escrow account.

Insurance:

Insurance is paid monthly into your escrow account for the protection of your home.  

When Is My First Mortgage Payment Due?

Your first mortgage payment will be made on the first day of the month after your closing. For example, if you close your mortgage on May 5th, you will not make a payment until June 1st. While you won’t make a mortgage payment, you will still be responsible for the interest accrued in the month of your closing. This interest owed will be paid at the closing table and listed on your closing disclosure.

If you have questions about the loan process, click here to schedule a time to speak with a licensed home loan expert today.

What is a Home Warranty?

Homeownership can come with many costs in addition to your monthly mortgage payment and utilities. Maintenance is one of them. If you don’t want to have to worry about footing the bill for a big, unexpected repair, one of the things you can do is get a home warranty.

If you’ve never heard of a home warranty before, keep reading. We’ll explain to you what this warranty is, how it works, and how you may be able to save money on some of the biggest costs of owning a home.

Armed with this knowledge, you should have a better idea of whether or not getting a home warranty might be something to consider in the future.

What is a home warranty?

Put simply, a home warranty is an annual service contract. It protects your home’s systems and appliances if they break down. Whether you just need a repair or a full replacement, a warranty should cover the cost of the parts, meaning that your bill will be significantly smaller than it would be otherwise.

How does a home warranty work?

If you have a home warranty, the first thing that you should do when something breaks is called the company. Typically, one of their representatives will be able to tell you whether or not the repair is covered under your specific warranty.

If the repair is covered, the warranty company will help you schedule a service call with a pre-screened professional. The professional will then come out to your house and make the repair or replacement as needed. In return, all you will have to do is pay for the service call. The home warranty will cover the cost of any replacement parts.

What types of repairs are usually covered by a home warranty?

It’s important to note that every warranty company is different, so their coverage will be different as well. However, that said, most home warranties will cover the home’s systems and all your major appliances, including:

  • Appliances
  • Refrigerator
  • Dishwasher
  • Stove (Gas or electric)
  • Microwave
  • Clothes’ washer
  • Clothes’ dryer
  • Garage door opener
  • Trash compactor
  • Systems
  • The heating system and ductwork
  • Air conditioning system and ductwork
  • Plumbing
  • Water heater
  • Garbage disposal
  • Smoke detectors
  • Central vacuum
  • Ceiling fans
  • Doorbell

In addition, many home warranties also offer the option for you to add on additional services for things like septic pumps, well pumps, or pool equipment. Meanwhile, others give you the option to extend coverage to a separate guest house or in-law suite.

If you have specific questions about what the warranty covers, your best bet is to call a home warranty company and to ask to speak to a representative. They will be able to tell you about the specific coverage limits of their policies and any optional, add-on services that they offer.

Is a home warranty right for me?

Ultimately, as the homeowner, you’re the only one who can decide whether or not a home warranty is right for you. However, if your home systems and appliances are older, it may be worth investigating. While this is an extra annual cost, it can save you from having to worry about an unexpected maintenance expense cropping up at the worst possible time.

Additionally, if you’re thinking of selling your home shortly, you may want to think about getting one of these for the future buyer. Often, advertising one can be a bonus for your listing in a competitive market.