WHICH MORTGAGE JARGON I SHOULD KNOW ABOUT

1. ANNUAL PERCENTAGE RATE (APR)

Annual Percentage Rate (also called APR) identifies the annual cost of a loan, expressed as a percentage. My APR includes my interest rate as well as other costs, including mortgage insurance, closing costs, and any additional loan or broker fees. It’s a wise idea to focus not only on the interest rate but the overall APR of my loan as a strong basis when comparing mortgage options.

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2. CLOSING AND CLOSING COSTS

Closing is the time and place when all my closing documents for the loan are signed, dated, and notarized. The documents required are the agreed-upon interest rate, monthly payments, and remaining costs to close the loan.

Closing Costs include fees related to title search and insurance, document preparation, attorney fees, appraisals, and any other relevant work that is done to secure my loan. Closing costs are due at the time of closing, and generally costs approximately 3% of my full loan amount. Keep in mind that closing costs don’t include additional items that I will be responsible for, like homeowner’s insurance, mortgage insurance, and property taxes.

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3. DEBT-TO-INCOME RATIO (DTI)

The Debt-to-Income Ratio is calculated by dividing my monthly debt payments by my gross monthly income. Monthly debt payments include things like credit cards, car loans, student loans, and any other additional monthly expenses. My gross monthly income is what I earn before taxes. When divided, the Debt-to-Income Ratio is expressed as a percentage. Usually, monthly mortgage payments should not exceed approximately 30% of my gross monthly income. Discover my DTI with  Debt-to-Income Calculator.

4. DOWN PAYMENT

Down Payments mostly range anywhere from 5% to 20%. Some loan programs require as little as 0% down, based on a variety of factors. My down payment covers the difference between my loan amount and the buying price. The advantage of a bigger down payment is eliminating my PMI, or Mortgage Insurance.

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5. Escrow

Escrow refers to funds that I deposit with a third party, they are held until a specific date or condition is met. When I make an offer on a house, my down payment will generally go to an escrow account while I finalized negotiations with the home seller. Mortgage lenders will also require a percentage of yearly taxes to be held in an escrow account which is maintained by the lender.

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Now that I know the Top 5 Mortgage jargon, I feel more confident researching lenders and loan programs! Next stop? Learn even more on our Mortgage Resources page or Contact Us to get in touch with one of our mortgage professionals today!