When the recession hit, many people who were on track to buy a home had to put their plans on hold. Now, as more and more people are able to buy again, it’s important that people have access to information so they can make informed decisions!
There are so many factors to consider when buying a home. And especially for first-time homebuyers, the process can be a tricky one! Learning some terminology used in real estate is a good place to start, and can make the entire process more comfortable.
Here are 5 important terms that relate to mortgage:
1. ANNUAL PERCENTAGE RATE (APR)
“APR” means the cost of all credit and finances during the length of a year. This includes interest rate, points, broker fees, and any other credit charges that the buyer is responsible for.
2. CLOSING COSTS
“Closing costs” may also sometimes be referred to as “transaction costs” or “settlement costs.” Closing costs could include various fees and charges that are related to finalizing your home purchase, and could include things like application fees, title examination, title insurance, property fees, as well as settlement documents and attorney charges.
The Real Estate Settlement Procedures Act makes sure that the borrower gets a good faith estimate of closing costs within three days of application from the lender. This will state each expected cost in detail.
3. DOWN PAYMENT
The mortgage process involves a down payment, which is the amount of money a homebuyer will pay in order to make up the difference between the mortgage amount and the purchase price. Some people recommend that you make a down payment of AT LEAST 10 to 15%, but any amount of 20% or more is recommended.
4. PRIVATE MORTGAGE INSURANCE (PMI)
If a borrower had a down payment that less than 20% of the home’s value, then PMI is typically required. The PMI charge is generally included in a monthly mortgage payment as a way to try and protect the lender from possible default.
5. TRUTH-IN-LENDING DISCLOSURE (TIL)
The Truth-In-Lending Disclosure is required by federal law. The TIL explains all lender-required costs for the loan. This includes (but is not limited to) the annual percentage rate, the terms of a loan and the amount and due date of the payments that will be required to pay the loan.