09 Nov Common Mortgage Terms Defined
When searching for a new home or looking to refinance your current residence, your real estate agent and loan officer will sometimes seem to speak their own language. At Fairway Independent Mortgage Corporation Montana, we don’t want you feeling lost or confused at any point in the process. To that end, we’ve broken down the common mortgage terms listed below to assist you in your understanding of the industry!
Occasionally referred to as “settlement costs,” closing costs are the amount required to complete your mortgage transaction. This compensates the parties who assist in funding, improving and insuring the home sale. Closing costs can include mortgage insurance, title insurance, transfer taxes, recording fees, lender charges, escrow fees and real estate commissions. Closing costs are typically 2 to 5 percent of the home purchase price.
An escrow account creates a simple way to manage your monthly property taxes and insurance premiums. This account can include homeowners insurance, mortgage insurance and flood insurance. When you make your monthly mortgage payment, the portion not directed toward your principal and interest is sent to this account. When your taxes and insurance are due, the payments are taken from this account automatically.
This ratio expresses the difference between the amount of money you borrowed for your mortgage loan and the current appraised value of your property. The loan-to-value percentage is important because it can help you avoid paying monthly mortgage insurance. In most loan programs, your loan-to-value ratio must be 80 percent or higher to qualify for no mortgage insurance on your payment.
Mortgage points, or discount points, can be paid to the lender up front in exchange for a lower interest rate throughout the life of your loan. Each point purchased is equivalent to one percent of your mortgage. The longer you plan to own your home or keep your mortgage, the more that purchasing points can assist in saving money long-term. Buying points can also potentially provide additional tax benefits.
When your loan application is sent to the underwriting department, this means it is in review. The underwriting team looks into your credit history, income, assets and liabilities, and the appraisal of your prospective purchase or current residence. These factors showcase your ability to make timely and complete mortgage payments throughout the life of your loan. The underwriter’s results will determine whether your loan is approved or denied, based on the assessed risk to the lender.
For more information on mortgage terms, or to have any questions answered by one of our licensed loan officers, contact our office today!