Mortgage Language 101
As spring approaches, "For Sale" signs are sure to pop up in everyones neighborhood. And, with mortgage rates low, many people who have been considering buying their first home will be out looking within the next few months.
Yet, the excitement of buying a first home can often become discouraging by confusing mortgage terms. Before you head to your credit union or other financial institution to apply for a loan, become familiar with some common lending terms.
To help you familiarize yourself with the language of a mortgage lender, the Credit Union National Association (CUNA) offers these tips:
Application Fee: A non-refundable application fee covers the lenders costs on a loan application, regardless of whether or not you end up with a mortgage. If granted a mortgage, this fee is often applied to your closing costs.
Appraisal: A mortgage is secured by the value of a property. An appraisal gives the lender assurance that the house has sufficient value to cover your mortgage request. An independent appraiser, not a realtor, usually completes this. It is important to note that an appraised value can differ from the purchase price.
Credit Check: The lender will perform a credit check on you (and if youre married, your spouse) to see if you pay your debts and what debts you have. You will have to explain any unfavorable information reported. It is best to check your credit report before applying for a loan to check for errors.
Down Payment: A larger down payment may allow you to negotiate a lower mortgage rate because of the reduced risk to the lender. However, dont tap yourself out the initial costs of owning a home may increase your need for cash.
Escrow: Escrows are advance payments held in a separate account to protect the lenders security interest in your property. For example, should you not pay your property taxes and your property is seized, the lender no longer has the security backing the mortgage. To avoid such scenarios, the lender requires at closing that funds be placed in escrow and continue with each monthly payment to pay for taxes and insurance as they come due. The lender may require escrow prepayment for as little as one month or as long as a year. Commonly, escrow funds are used to pay property taxes and any insurance, such as flood and homeowners, required by the lender.
Monthly Payment: Many first-time homebuyers are surprised that the monthly payment covers more than the mortgage. Included is the mortgage payment (principal and interest), plus the escrow amount.
Article continued at http://www.pacreditunions.com/commoncents2002/