Common Terms You Should Know Before Applying for Mortgage
If you are planning to buy a house, you need to get familiar with the terms that are associated with the mortgage. There are terms that are difficult to understand for the people who are not from the finance background. So, here’s a guide for the beginner’s to the terms that will help the home buyers during the mortgage process.
1) PITIA
PITIA – A common term that you might hear during the loan qualification process. At first, you might give a confused look but it’s the abbreviation used Principal, Interest, Taxes, Insurance, and Association Dues.
Principal is the unpaid balance on your loan at any given time.
Interest refers to the percentage of money your mortgage lender is charging against the loan.
Taxes like property taxes, are considered as a part of your mortgage payment.
Insurance is required to make sure your house can be rebuilt in case of natural disaster.
Association dues are included in your payment for qualification purposes if you are moving into a condo with a homeowners association.
2) Annual Percentage Rate (APR)
There are two mortgage rates. One is a lower rate that the lender will charge you for borrowing the money. The second is the APR that includes the basic interest charge and the fees the mortgage lender will charge for other closing cost.
3) Term
The term is the time that you require to pay your loan off if you made the minimum principal and interest payment every month. The longer the term, the higher the rate of interest.
4) Fixed vs. ARM Mortgages
A fixed-rate mortgage, as the name suggest, is the mortgage in which the rate doesn’t change. Only taxes will fluctuate the rate will remain the same.
Whereas in adjustable-rate mortgage the rate is fixed at a lower rate compared to the fixed rate mortgage for first several years of the loan. At the end of the fixed period, the rate adjusts once per year, up or down. For example, 7/1 ARM refers to 7 years fixed rate and it adjusts once per year at the end of the fixed period.
The lower limit for rates is set by the mortgage lender.
5) Amortization
Amortization schedule is the amount of principal and interest paid every month over the course of your loan. If you make normal payments every month, the payment will mostly go towards the interest rather than the principle. This shifts over time and at the end of your loan term, your payment will go towards the principal rather than interest. If you have a sound finance and your mortgage lender allows, you can save on interest and pay off your mortgage quicker by paying a bit extra directly toward your principal.
6) Titles and Deeds
People often get confused with the terms A title is a proof of ownership that also has a physical description of the home and land you want to buy. You need to make sure that no other person than the seller has the rights to the property as it could cause problems for you in the future.
A deed is the actual document that you get during the closing stating that the property is yours.
So, now that the most common terms during the mortgage process are covered, you can start searching for the best mortgage lenders in Massachusetts. Our loan officers at Drew Mortgage Associates will guide you throughout the complete process from the pre-qualification letter to your closures.
