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.
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 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.
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 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 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 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.
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.
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 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.