Most homebuyers, especially the first time homebuyers are bothered only about the interest rates and the monthly installments when obtaining a home loan. They leave the other important aspects of the home loan to their home loan consultants. Though it’s great to work with a consultant who you can trust completely, that does not mean you wouldn’t even bother to find out the terms and conditions of your home loan. We, therefore, strongly recommend all home buyers to carefully go through the entire contract to ensure they understand and agree to all terms and conditions mentioned in that contract. While going through the contract, you may come across a few terms that you may be unsure of. To help you ease the process, here are a few important terms and a brief description of each term. Let’s begin.
1. Adjustable Rate Mortgage
An adjustable rate mortgage is a mortgage in which the rates vary on a periodic basis. The rates vary basis the index and margin.
Amortization is the spreading of the repayment of a loan into equal periodic payments. By the end of the fixed period, both the principal as well as interest gets repaid.
3. Buy Down
Borrowers may ‘buydown’ their interest rates, it means they may bring down the interest rate of their mortgage by paying an upfront fees (called points) to the lender.
4. Closing Costs
Closing cost is the fees that is paid at the end of a property purchase. Usually, the borrowers pay the closing costs, but in some loans the sellers may also partially bear the costs.
5. Earnest Money
Also known as escrow deposit, the earnest money is the amount that a buyer pays to the seller as a commitment to buying the house. If all goes well, this money goes towards paying the downpayment and closing costs.
6. First Time Homebuyer Program
Various states in the US offer its residents first time homebuyer programs to make homebuying easy for them. For example, for Texans, there are several Texas First time Homebuyer Programs available.
7. Mortgage Insurance
Typically, borrowers need to pay a periodic mortgage insurance premium if the down payment they paid is less than 20 percent. It helps lenders lower their risk in case of a loan default.
Last Few Words
Hope you wouldn’t blame the cryptic mortgage vocabulary as an excuse for not going through the home loan contract, after reading this post on important mortgage terms. You must also note that once you have signed a home loan contract you are legally bound to abide by each and every term and condition mentioned in it, and in the case of a dispute the case the lender would be in a stronger position.