Buying a House? Top 5 Terms You Need to Know

Buying a House? Top 5 Terms You Need to Know

 

Buying a house is a big financial commitment.  It means taking on a mortgage payment for 15 or maybe 30 years.  Beyond your monthly loan payment, what else do you need to know?

Columbia University has put together a list of more than 400 real estate terms.  If you were a real estate agent, then you probably would be well versed in all of the terminology.  If you are looking to buy a house, then here are the “Top 5” terms to know.

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Mortgage

When you hear the term mortgage, you might immediately think, “That’s what I will need to pay my lender every month.”  What is the true definition of a mortgage?  Columbia University provides the full explanation as a “pledge of real estate collateral to secure a debt.  Also, it is a legal document describing and defining the pledge.  The mortgage may also include the terms of repayment of the debt.  It is also referred to as a deed of trust.”

APR

The interest rate is the cost you will pay each year to borrow the money, expressed as a percentage rate. It does not reflect fees or any other charges you may have to pay for the loan.

An annual percentage rate (APR) is a broader measure of the cost to you of borrowing money. The APR reflects not only the interest rate but also the points, mortgage broker fees, and other charges that you have to pay to get the loan. For that reason, your APR is usually higher than your interest rate.

PITI

This is an acronym for a mortgage payment and stands for:

  • Principal
  • Interest
  • Taxes
  • Insurance

Title Insurance

Title Insurance protects against loss of ownership interest and financial loss caused by a legal defect or question about the title. There are two types of Title Insurance policies. There is Lender’s Title insurance to protect the lender, and an owner’s policy to protect the borrower. In a mortgage transaction the lender’s policy is always purchased for the lender’s protection and paid by the borrower at closing. The Owner’s policy is optional, but always highly recommended by the Financial Institution as it cover’s the borrower’s interest in the property.

Closing Costs

When you have found a house and are ready to buy, then it is time to “close on the deal.” Closing costs are the additional fees beyond the mortgage.  The closing costs can include Title Insurance, appraisal fees, attorney fees (if an attorney is needed), recording fees and taxes.  Closing costs can vary with different lenders.

Yes there are additional terms you might want to know such as, Amortization, DTI, LTV, Fair Market Value and Loan Commitment.  Buying a house, or any property, can be quite formidable.  Having to know 400+ real estate terms is extremely unnerving.   The Mortgage Loan Officers at Atlantic Federal Credit Union are a great place to start if you have questions.

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