Whether you’re a first-time or seasoned home buyer, the world of mortgages can seem intimidating. Luckily, United Mortgage Group is here to help. We assist individuals looking to buy or refinance a home in Alabama or Florida get the best rates possible for their investment. In the first installment of this multipart series on mortgage terminology, we explain a variety of important terms related to home loans. Read on to discover our glossary of mortgage terms, and get in touch with us now if you’re interested in buying or refinancing a home in Alabama or Florida!
Adjustable-Rate Mortgage (ARM) – An ARM is a type of mortgage with an interest rate that varies depending on how the market moves. During the introductory period of your ARM you will get a fixed interest, which is usually lower than what you would with a fixed-rate loan. After this introductory period expires, however, your interest rate will follow that of the market. Receive a quote on an ARM for your dream home in Florida or Alabama by filling out our free Adjustable Rate Mortgage Qualifier now!
Amortization – Amortization refers to reduction of the amount owed on a mortgage as the payments are made. An amortization schedule reflects your monthly payments and keeps you on track to pay off your loan during the term.
Annual Income – This important factor on your mortgage application refers to your total earned pre-tax income over a year. Mortgage lenders look at your annual income and existing monthly debts to determine your ability to repay a loan.
Annual Percentage Rate (APR) – The APR is the interest you’ll pay on your home loan annually plus any additional lender fees. Your APR is expressed as a percentage. When you shop for a home loan, you may see two interest rates listed; the larger one is the APR because it includes the fees.
Appraisal – A home appraisal is a rough estimate of the fair market value of that property, as determined by an outside appraiser. Mortgage lenders require appraisal in order to ensure that they aren’t loaning more money than a home’s worth.
Assets – An asset is anything that a potential home buyer owns that has cash value, such as their checking and savings accounts, 401K and IRA accounts, stocks, bonds, mutual funds, etc. When you apply for a mortgage, the lender will want to verify your assets to ensure that you have enough money in savings and investments to cover your payments if you run into a financial emergency.
Balloon Mortgage – Balloon mortgages are a type of home financing that requires you to pay a lump sum at the end of your mortgage.
Closing Costs – Closing costs are settlement costs and fees paid to a lender in exchange for finalizing your home loan. Commonly, these include appraisal fees, loan origination fees, and pest inspection fees. The specific closing costs you will pay depend on your location and property type. Usually, the closing costs amount to 3%-6% of the total value of your loan.
Closing Disclosure – This document explains the final terms of your loan, including your interest rate, principal, and closing costs. Your mortgage lender is legally required to give you three days to review your closing disclosure before you sign on your loan.
Conforming Loans: A conforming loan is a mortgage that is equal to or less than the dollar limit on a home loan set by the Federal Housing Administration (FHA). Conforming loans are advantageous for borrowers with good credit, because they have lower interest rates. As of 2021, the baseline conforming loan limit is $548,250 for most parts of the United State.
Co-signer – Sometimes referred to as a “co-borrower,” a co-signer is someone who takes on full responsibility to repay a loan with you. They are obligated to pay any missed payments and even the full amount of the loan if you don’t pay. Having a co-signer on your mortgage can give your lender additional assurance that the loan will be repaid, however the co-signer’s credit record and finances are at risk should you not repay the loan.
Comps – Real estate comps (short for “comparables”) refer to recent sales of similar properties. They are used to appraise a home’s fair market value.
Credit Score – One of the most important factors in any home loan application, your credit refers to your creditworthiness as a borrower, expressed in a number rating. The higher your credit score, the more likely you are to be approved for a mortgage.
Date of Possession – The date of possession is the date on which a buyer is entitled to move into a purchased home.
Debt-To-Income (DTI) Ratio – Your DTI is equal to your total fixed, recurring monthly debts divided by your total monthly gross household income. Mortgage lenders look at your DTI to ensure that you have enough money coming in each month to make your payments.
Deed – A deed is the physical, legal document that proves you own your home. You’ll receive your deed when you close on your loan.
Get Unbeatable Mortgage Rates With United Mortgage Group
If you’re looking to purchase or refinance a home in Florida or Alabama, turn to United Mortgage Group for unbeatable rates and a variety of different home loan options. We will work diligently on your behalf to ensure that you get the best loan offer for your specific scenario. Get started today by getting pre-approved for free with our Home Purchase Qualifier tool, and stay tuned for even more installments in our “Mortgage Terms You Should Know” series.