Are you considering the purchase of a new home, If you are then you could not have picked a better time. Since the housing market is relatively sluggish, this means that you will find low home prices and low interest rates. And there are much more homes to choose from. These extra homes make for a buyers market because the basic laws of supply and demand are in effect. If you plan to purchase soon then it will be good to have a basic understanding of the terminology that you will come across in the real estate market.
Some common mortgage terms include the following:length or term of loan, interest rates, variable rate loans, closing costs,document taxes,origination fees, acceleration, home equity,conventional financing, amortization, FHA loans,down payment,points, private mortgage insurance (PMI) and fixed rate loans.
The interest rate is how much money the lender will charge in order for you to borrow on the loan. Generally this is expressed in terms of percent. Therefore the lower an interest rate, the less the loan will cost. The length of the loan is referred to as the term of the loan. This is the length of time that you will have to make mortgage payments. In the past, a mortgage could last for twenty years. However, nowadays thirty years is much more common.
Closing costs are the fees that come with the actual buying and selling of the home. Closing cost fees include: title insurance fees, realtors fees, cost of necessary repair costs to the home,document stamp tax,points and various other costs. The opposite of fixed loan rates is the variable rate loan. A variable rate loan will allow for the interest rate to fluctuate with the prime interest rate. With a fixed rate loan an interest rate will remain the same no matter the length of the loan.
Loan discount points are simply called “points” and they are the fees that are charged to the buyer from the lending bank. They are considered prepaid interest and can add some additional to the closing costs. A point is equal to one percentage of the loan amount. If you are borrowing $200,000 and are assessed one point by the lender, then you would have top pay $2000 of prepaid interest at the time of closing.
PMI or Private Mortgage Insurance is insurance that allows a buyer to make a smaller down payment on the house that they want to buy. If you plan to put less than 20% down on a home, most lenders will require you to purchase private mortgage insurance. The down payment is the amount of money that you will pay out of pocket toward the purchase price of your home. Your down payment will include the selling price of the home minus the amount of the mortgage.
Most lenders will either require a 20% down payment or you will have to carry private mortgage insurance.