Buying a Home? Do You Know the Lingo?

Buying a home can be intimidating if you are not familiar with the terms used during the process. To start you on your path with confidence, we have compiled a list of some of the most common terms used when buying a home.

Freddie Mac has compiled a more exhaustive glossary of terms in their “My Home” section of their website.

Annual Percentage Rate (APR) – This is a broader measure of your cost for borrowing money. The APR includes the interest rate, points, broker fees and certain other credit charges a borrower is required to pay. Because these costs are rolled in, the APR is usually higher than your interest rate.

Appraisal – A professional analysis used to estimate the value of the property. This includes examples of sales of similar properties. This is a necessary step in getting your financing secured as it validates the home’s worth to you and your lender.

Closing Costs – The costs to complete the real estate transaction. These costs are in addition to the price of the home and are paid at closing. They include points, taxes, title insurance, financing costs, items that must be prepaid or escrowed and other costs. Ask your lender for a complete list of closing cost items.

Credit Score – A number ranging from 300-850, that is based on an analysis of your credit history. Your credit score plays a significant role when securing a mortgage as it helps lenders determine the likelihood that you’ll repay future debts. The higher your score, the better, but many buyers believe they need at least a 780 score to qualify when, in actuality, over 55% of approved loans had a score below 750.

Discount Points – A point equals 1% of your loan (1 point on a $200,000 loan = $2,000). You can pay points to buy down your mortgage interest rate. It’s essentially an upfront interest payment to lock in a lower rate for your mortgage.

Down Payment – This is a portion of the cost of your home that you pay upfront to secure the purchase of the property. Down payments are typically 3 to 20% of the purchase price of the home. There are zero-down programs available through VA loans for Veterans, as well as USDA loans for rural areas of the country. Eighty percent of first-time buyers put less than 20% down last month.

Escrow – The holding of money or documents by a neutral third party before closing. It can also be an account held by the lender (or servicer) into which a homeowner pays money for taxes and insurance.

Fixed-Rate Mortgages – A mortgage with an interest rate that does not change for the entire term of the loan. Fixed-rate mortgages are typically 15 or 30 years.

Home Inspection – A professional inspection of a home to determine the condition of the property. The inspection should include an evaluation of the plumbing, heating and cooling systems, roof, wiring, foundation and pest infestation.

Mortgage Rate – The interest rate you pay to borrow money to buy your house. The lower the rate, the better. Interest rates for a 30-year fixed rate mortgage have hovered between 4 and 4.25% for most of 2017.

Pre-Approval Letter – A letter from a mortgage lender indicating that you qualify for a mortgage of a specific amount. It also shows a home seller that you're a serious buyer. Having a pre-approval letter in hand while shopping for homes can help you move faster, and with greater confidence, in competitive markets.

Primary Mortgage Insurance (PMI) – If you make a down payment lower than 20% on your conventional loan, your lender will require PMI, typically at a rate of .51%. PMI serves as an added insurance policy that protects the lender if you are unable to pay your mortgage and can be cancelled from your payment once you reach 20% equity in your home.

d8b0ea38 db22 402c bdf8 2065608d200a 849737d8 fee1 4f70 8cb0 3e7cea50dc27 9e0a99d4 dcb9 4898 af16 64445edae6f4 cd6000fb c109 4a73 9d05 0d8219c39790 917b3085 7a1c 4027 8eb6 d8bbbe0bd824 f262e34d cfe1 40ee b172 d6844fb43f8f 617f50d4 f7eb 4483 bb81 6216cadae4c6 0c410af5 ad59 4709 b570 2cfa5c1acd6e f8ff4f1b 2a74 4bd2 8e08 edd9bde7ff8a 02a52f46 9158 406e aba2 8da9edfc703b ba4057a4 f8da 4f0b a59a 9619d181ec82 16882c97 08dc 48cf b409 9626c5326538 bf177785 cad1 4d2a 984e b777b0c1ba40 98fffb59 cdf3 4d9a 82f0 832c9ee438a1 014ef4b4 3920 4ad8 8eac e07737fa87d9 f86f0675 3b03 4c65 b1e6 c0692b7c5c2a d5096181 ada9 4911 978c 32c9e1a19be9 99526b45 b2ad 4b86 b0f5 d7c47c56ddc2 9be7d644 a53c 4495 ac79 0345ac1be6ab 60348656 1956 4466 b59f 3bcc81cad41a 7cb110da e3df 4707 a5aa 416db12d442a e6d1d50c 63e5 44c7 a94d 72fa9ad332e1 ffd7c69c 9ab8 47f3 ac21 7fc171a0202d