Loan terms you need to know

Loan terms you need to know

With any major purchase, there are going to be terms and vocabulary words you are not use to hearing or using. Information is power and it will help you through the home buying process if you are familiar with some terms you may here frequently.

What are Closing Costs?
Just like any purchase, there are fees associated with the sale, buying a home is no exception. Here are some basic costs you will need to be prepared for (but are not limited to):

  • Appraisal fee
  • Home inspection fee
  • Credit application
  • Assessed county property taxes 
  • Title owner policy/lender title policy
  • HOA transfer & disclosure fees
  • Loan origination fees
  • Tax services
  • Recording fees
  • Homeowner (Hazard Insurance)
  • Underwriting/Loan doc preparation fee

This may look like a lot of fees and may seem like its going to cost an arm and a leg to buy a home – but it really doesn't! On average, you can safely plan for about 3% of total purchase price to cover all the closing costs. But, before it comes time to sign on the dotted line, do your homework, make sure there are no hidden fees, and ask your lender lots of questions so that you understand all the costs involved with your mortgage!

Purchase Points
Also known as a “buy-down” or “discount points,” are an up-front fee paid to the lender at closing to buy-down or lower your interest rate over the life of the loan. Each point is equal to 1% of your total loan amount. If you have a $100,000 loan, one point would equal $1,000. The more points you buy, the lower your interest rate, but the more money you’ll need at closing.

Interest Rate
When you get a mortgage, you are charged an interest rate – this is the rate which the lender charges you for using their money to buy a home. It determines how much your monthly payments will be. This is where shopping for a home loan and making a wise choice on who to use for your mortgage is important. You want to make sure whatever you are “quoted” as your interest rate is what actually gets put in writing.

Keep in mind, mortgage rates change constantly. If you speak to a lender today and are quoted a specific interest rate, don’t assume you’ll necessarily get that rate when you close on your loan. It is not until you formally lock-in that rate with the lender that the rate will guaranteed. Most lenders will allow you to lock in for 15, 30, 45 or 60 days. But, keep in mind, the longer you lock in, the more expensive it will be, since it’s more of a risk to lenders.

What is a good faith estimate?
Your lender must provide you with a good-faith estimate within three days of your application. This is the information you need to make a fair and accurate judgment when shopping for a loan. Your estimate is a written document that shows all the costs that can be estimated in advance by the lender. You need this information so there are no surprises on the day you close your sale on the property to be purchased. You will be expected to pay closing costs. You should review all costs, know which are non-refundable in the event your loan is not approved, and be prepared to pay outstanding fees at closing. You may also want to compare these costs to those charged by other lenders when shopping for your home plan.

What does PI and PITI stand for?
The bulk of your monthly mortgage payment goes toward paying off the principal and interest of your loan, (you may hear lenders refer to this as “P & I” which stands for Principal and Interest. In addition, most lenders require that you pay a sufficient amount to cover your local real estate tax, plus your homeowner’s or hazard insurance, (you may hear this “total” payment referred to as “PITI” or Principal, Interest, Taxes & Insurance.) This amount is placed in an escrow account, from which your lender then pays your tax and insurance bills as they come due. When shopping for a loan, it is important to ask the lender if the monthly payment you are being quoted is PI or PITI.

Contact Information

Photo of Nate Martinez Real Estate
Nate Martinez
RE/MAX Professionals
20241 North 67th Avenue, Suite A1
Glendale AZ 85308
623-643-1010
602-430-5226
Fax: 602-532-7352

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