Mortgage Basics

It can be difficult to know where to start when considering buying a home. Last month, we focused on tips for first-time homebuyers, explained how credit works and shared steps for setting budgets. This month, we’ll continue with mortgage basics, dream home wish lists, what you’ll need for a loan application and what documentation to keep after your loan closes. Let’s start with some basic mortgage terms. Mortgage terminology can feel like a foreign language. You may be wondering what “amortization,” “discount points” or “escrow” means.

Points, fees, and adjustable rates. If you are brand new to home buying, then mortgage terminology can be like reading Greek. But as the saying goes, knowledge is power. So use the following glossary of terms to raise your own awareness.

Adjustable Rate

Your interest rate is adjusted periodically, based upon an index.

Amortization

Paying off a debt over time. Part of each payment goes toward the loan principal and part goes toward interest.

Appraisal

The process of developing an opinion of a home’s market value, conducted by a licensed, professional real estate appraiser. Appraisals are used to determine if a home’s sale price (and the borrower’s requested loan amount) are appropriate.

Closing Costs

Expenses over and above the price of the property. Common closing costs can include origination fees, discount points, appraisal fees, title insurance, escrow fees and mortgage insurance.

Closing Disclosure

A Closing Disclosure is a five-page document that includes all final details about your mortgage, including your terms, monthly payments, fees and all other costs. Lenders are required to provide this document three business days before your scheduled loan closing.

Discount Points

Discount points are essentially one-time, pre-paid interest charges on your loan. Each point is equal to 1% of the total loan amount. Discount points can reduce your final interest rate and are tax deductible.

Down Payment

A portion of your total home cost that is paid up-front. A larger down payment can result in a smaller monthly payment and a lower principal balance.

Escrow

Your earnest money deposit is held in what’s known as an escrow account by a third party until the closing of your transaction. While this account is open, the borrower is considered to be in escrow.

Fixed Rate

Your interest rate will remain the same throughout the life of the loan.

Loan Estimate

Lenders are required to provide borrowers with an estimate of the fees that will be due at closing. Lenders must provide this estimate within three days of taking a completed application that includes the proposed property address.

Origination Fee

An origination fee is paid to the lender for the costs of processing the loan.

Refinancing

There may come a time during the life of your loan that you will wish to refinance. Perhaps you want to take advantage of lower interest rates or to consolidate debt. If you are eligible, in good credit standing, and with sufficient equity, you may be able to do just that.

For more information the mortgage process, be sure to talk with a lender or your real estate agent.

Underwriting

This lender process is used to determine how much of a risk you and your mortgage would be to their company. An underwriter will evaluate such things as your credit history, assets, as well as your employment, income and current debts. They’ll also evaluate the value and condition of the purchase property.

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411 E. Huntington Dr. Ste. 209, Arcadia, 91006

This is not an offer for extension of credit or commitment to lend. All loans must satisfy company underwriting guidelines. Not all applicants qualify. Information and pricing are subject to change at any time and without notice. The content in this advertisement is for informational purposes only. Products not available in all areas. 5-Star Loan is an Equal Housing Lender. As prohibited by federal law, we do not engage in business practices that discriminate on the basis of race, color, religion, national origin, sex, marital status, age (provided you have the capacity to enter into a binding contract), because all or part of your income may be derived from any public assistance program, or because you have, in good faith, exercised any right under the Consumer Credit Protection Act. The federal agency that administers our compliance with these federal laws is the Federal Trade Commission, Equal Credit Opportunity, Washington, DC, 20580.