Dime Mortgage Dictionary
April 30, 2019 |
Amortization. FHA loans. Escrow. There are a lot of new words to learn when you’re buying a house.
With the Dime Mortgage Dictionary, we give you a quick guide to the most important words you need to understand to be fully prepared.
Let’s get started, shall we?
- Amortization: the paying down of a debt through regular payments over time. With mortgages, your payments are split between the interest you owe the lender, and the principal you borrowed for the house. At first you’ll be paying mostly interest, and over time you’ll be paying mostly the principal.
- Adjustable Rate Mortgage: a mortgage rate that is fixed only for a specific amount of time, generally 1, 3, or 5 years. During the initial rate period, your interest rate will typically be lower, and then it will adjust based on the market.
- Appraisal: the inspection of a property before documents are signed to estimate the value of the property. Conducted by a professional appraiser, the inspection looks at the physical condition of the home as well as comparable houses nearby to determine the value.
- Closing Costs: the costs that come with closing on the house. These fees generally include attorney fees, recording fees, escrow fees, transfer taxes, etc., that must be paid by the buyer (though if you have a good realtor, you might be able to get the seller to cover them).
- Down Payment: the amount of money you put down upfront for a property. Most lenders require a specific amount (usually 20% of the price of the property) to qualify for a mortgage. Want to save for a down payment quickly? Check out this article.
- Escrow: a process where a neutral third party mediates a real estate contract, holding funds “in escrow” until the two sides agree and the sale is closed. Not to be confused with…
- Escrow Account: an account set up by the mortgage lender that helps manage the mortgage borrower’s (your) annual taxes and insurance costs.
- FHA Loan: a government sponsored loan that allows people to purchase homes with a significantly smaller down payment, often as low as 3.5%. If you don’t have a stellar credit score, this may be an option.
- Fixed Rate Mortgage: a mortgage where the interest rate and term are locked in place for the life of the loan. These terms usually range from 10 to 40 years. Not to be confused with an adjustable rate mortgage (see above).
- Homeowner’s Insurance: insurance for your new home, like insurance for your care. Your mortgage lender needs to be listed as a loss payee in case a fire or natural disaster damage your property. And you need to have it in place before the loan is active.
- Mortgage Insurance: a type of insurance required by many mortgage lenders if your down payment is less than 20%. It helps protect the lender should you default on the loan. If you have an FHA loan, you’ll most likely need mortgage insurance.
- Points: a system where you can purchase points to lower your interest rate. Each point is the same as 1% of your mortgage, though how much your interest rate lowers varies based on the type of loan, the market, and your lender’s policies.
- Preapproval: having a mortgage lender examine your credit rating, finances, and other factors to ensure you are a good candidate for a loan. Becoming preapproved can make you a more attractive buyer for a home, as you have proof you are ready and able to buy.
- Principal: the amount of money you actually borrow to buy a property. It doesn’t include the interest.
- Underwriting: the review of your loan to ensure it is secure for approval. Underwriters consider credit history, assets, income, liabilities, etc., to prove you are a good loan candidate.
Need help with more mortgage terms? Dime’s mortgage specialists can help.