01 June . 2021
Mortgage Terms Every Home Shopper Should Know
Remember staring up at the board in your high school foreign language class trying to make sense of it all? Well, sometimes understanding your mortgage can feel a little like that. But don’t sweat just yet! With enough info, a little research, and some handy crib notes, these common mortgage terms will be right on the tip of your tongue.
CREDIT SCORE RISK A credit risk score is a statistical summary of the information contained in a consumer’s credit report. The most well-known type of credit risk score is the Fair Isaac or FICO score. This form of credit scoring is a mathematical summary calculation that assigns numerical values to various pieces of information in the credit report. The overall credit risk score is highly relative in the credit underwriting process for a mortgage loan.
LOCK A lender’s guarantee that the mortgage rate quoted will be good for a specific number of days from the day of application.
MATURITY The date on which the principal balance of a loan becomes due and payable.
MARKET VALUE The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.
PITI Principal, interest, taxes and insurance. 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 monthly cost of property taxes and homeowners insurance, whether these amounts are paid into an escrow account each month or not.
PRE-APPROVAL The process of determining how much money you will be eligible to borrow before you apply for a loan.
PRIVATE MORTGAGE INSURANCE (PMI) In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment – as low as 3 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will usually require an initial premium payment and may require an additional monthly fee depending on your loan’s structure.
For a complete list of home buying terms you may run across visit this glossary put together by the National Home Buyer’s Alliance.