20 Mortgage Terms You Should Know: Helpful Information for First Time Homebuyers

When you’re about to buy a home, there are so many confusing moving parts to the process. Getting your mortgage can be one of the most confusing aspects—but if you understand the lingo, it will be a lot less confusing. Here are 20 mortgage terms all first-time homebuyers will definitely want to know.

Appraisal

This is an estimate of a home’s worth. You must get a home appraised before you can get your home loan so lenders know that they are only giving you what you need.

Appreciation

Appreciation means that a property’s value increases over time.

Adjustable-Rate Mortgage (ARM)

A mortgage with an ARM has a set amount of time where the interest rate will not change. After that time is up, the interest rate is subject to change.

Annual Percentage Rate (APR)

Your APR is the money you’re charged for borrowing money. It includes your interest rate and financing charges and fees.

Balloon Loan

A balloon loan begins with low payments over a certain length of time. After that time is up, payments will become very high.

Broker

This is a third party who assists in negotiating the contract between buyer and seller or organizes the funding. They are not responsible for actually lending money.

Cap

This is a limit on how much variable interest can increase on a loan. An annual cap limits the amount that interest can increase over a certain length of time, while a lifetime cap limits the amount it can increase ever.

Debt-to-Income Ratio (DTR or DTI)

Your DTR or DTI is a measurement of how risky it is for a lender to loan you money. It’s calculated by dividing your overall debt by your income. The higher your DTR, the more difficult it will be to get a loan.

Down Payment

This is the initial payment you make on your home loan. Usually, you will be expected to pay between 3% and 20% of your home’s value as the down payment.

Fannie Mae (FNMA)

This is a government-sponsored enterprise that sets the guidelines for conforming loans and ensures homeowners can pay for their homes.

Fixed-Rate Mortgage

This is the opposite of an adjustable-rate mortgage. The interest remains the same over the entire life of the loan.

Freddie Mac (FHLMC)

Like Fannie Mae, this is another government-sponsored enterprise that sets the guidelines for conforming loans and ensures homeowners can pay for their homes.

Loan-to-Value Ratio (LTV)

This is the ratio between the amount left unpaid on the loan and the appraised value of the home. A lower LTV shows that you’ve made a larger down payment.

Maturity Date

This is the date by which all a loan’s principal, interest, and fees must be repaid.

Mortgage Insurance

This protects the lender if your loan defaults. It may be required if your down payment is under 20%.

Prepayment

This is making a payment on your loan’s principal before it’s due to reduce your overall principal balance.

Principal

This is the amount of money that’s currently owed on a mortgage, not including interest.

Seller Concessions

These are clauses included with a home offer requesting the seller to pay some of the closing costs.

Third-Party Fees

These are fees that you may have to pay in the buying process besides fees paid to the borrower or lender. Appraisal fees, title certifications, and flood certifications are all third-party fees.

Underwriter

This is the person who will approve or deny your mortgage according to the lender’s underwriting and approval terms.,

Get Your Burning Mortgage Questions Answered!

This is definitely not every single term you’ll hear related to your mortgage, but it’s a good start. If you’ve heard other confusing mortgage terms you’re unsure about, don’t hesitate to reach out to the Carolina Mortgage Team at Revolution Mortgage! Our mortgage experts are always happy to help first-time homebuyers!

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