10 Confusing Mortgage Terms Explained

 
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Buying a home is one of the most important financial decisions you will make. Understanding the mortgage process is crucial to ensure a smooth and seamless settlement. One of the most confusing parts of the process is understanding the terminology in discussing mortgages. Mortgage consultants use lingo that is quite unique to the mortgage industry. To better help your understanding, I have highlighted the top 10 confusing mortgage terms below to define and explain their meanings as related to the mortgage process:

  1. Annual Percentage Rate (APR)

    The cost of a mortgage expressed as a yearly interest rate, includes costs such as interest, mortgage insurance, and loan origination fees (points). Calculating the APR is required government disclosure as a way to "level the playing field" and compare mortgage rates from lender to lender.

  2. Appraisal

    A written analysis of the estimated fair market value of a property, prepared by a certified appraiser and approved by the lender.  It usually compares similar properties in your area that have sold within the last three to six months.

  3. Closing Costs

    Expenses incurred by the buyers and sellers in transferring the ownership of a property. These expenses are separate from the cost of the property, and include costs for services, taxes, or products. Normal closing costs include origination fees, attorney's fees, taxes, escrows, title charges, and a survey. The closing cost items are listed separately on the loan estimate and closing disclosure. 

  4. Earnest Money Deposit

    A deposit made by the potential home buyer to show that he or she is serious about buying the house.

  5. Escrow

    A deposit of funds by the borrower with the lender to pay taxes and insurance bills when they become due. Also, can be an amount held by an attorney or title agent that will be disbursed upon the closing of a transaction.

  6. Lock-In

    A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing for the interest rate.

  7. Prepaids

    Those expenses of the property which are paid in advance of their due date and will usually be prorated upon sale, such as taxes, insurance, rent, etc.   

  8. Pre-qualification

    The process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan.

  9. Principal, Interest, Taxes, and Insurance (PITI)

    The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard (homeowners) insurance.

  10. Underwriting

    The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness and the quality of the property itself.

Article Written By: Kevin Berju, Branch Manager AFN, www.PhillyMortgageTeam.com

American Financial Network NMLS # 137213



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Kevin Berju starts Philly Mortgage Team with over 25 years in the mortgage industry. Prior to working with residential and commercial mortgages, Kevin graduated with a business degree from Temple University, owned his own business, and worked as an agent for years in both commercial & residential Real Estate. With Kevin’s diverse knowledge of the real estate and mortgage industries, his clients are thoroughly guided throughout their home buying or refinance process. As a result of his knowledge, attention to detail, responsiveness to his clients, and exceptional work ethic, Kevin was awarded the Five Star Mortgage Professional recognition in Philadelphia Magazine for the past successive years as well as reaching the top 1% of all originators country wide since 2012 as designated by Mortgage Executive magazine.

As a mortgage professional for over 2 decades, Kevin is an invaluable resource for both first-time and experienced home buyers. With his accomplishment of the Certified Mortgage Planning Specialist designation, Kevin is placed in an elite group of the top 5% of mortgage professionals in the industry. Looking to Purchase or Refinance in Pennsylvania, New Jersey, or Florida? Kevin Berju is the Lender for You!


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