To continue our home buying education from Brunswick Crossing, check out the glossary of financial terms you should know before applying for a new home loan:
80-10-10 loan. The first mortgage is 80 percent of the home’s value, the second mortgage is 10 percent, and the last 10 percent is the down payment by the borrower; eliminates the need for mortgage insurance but requires small maintenance fees yearly.
Adjustable-rate mortgage. Also known as variable-rate mortgage or tracker mortgage; a loan where the interest rate is periodically adjusted based on an economic index; may be offered at the lender's standard variable rate.
Amortization. The process of paying off debt with a fixed repayment schedule in regular installments over a period of time.
Appraisal. A valuation of a new home by the estimate of an authorized person.
Assets. A financial snapshot that includes bank account balances, retirement funds, assets to liquidate, 401K funds, and gift funds.
Borrower-paid mortgage insurance (BPMI). A mortgage option that offers preliminary higher monthly payments that will be canceled at a certain point; once BPMI is removed from the loan, monthly payments are lower.
Closing costs. Property tax, homeowners insurance, and mortgage interest escrows; capital contribution to a homeowners association; loan origination, appraisal, transfer and recordation, process and underwriting, and title and title insurance fees; and upfront PMI.
Conventional loan. A fixed-rate mortgage that’s not secured by a government-sponsored entity.
Credit score. A numerical rating of your ability to repay a loan; depends on payment history (on-time payments, late payments, and past due payments), number of credit accounts, and borrowed credit versus credit limit.
Escrow. The portion of a mortgage payment, over and above the principal and interest of the monthly payment, that's set aside in an escrow account and pays for the taxes and homeowner's insurance.
Fixed-rate mortgage. A fully amortizing mortgage loan where the interest rate remains the same through the term of the loan.
Lender-paid mortgage insurance (LPMI). A mortgage insurance option that offers lower monthly payments, carries a higher interest rate, and remains for the life of the loan until it's refinanced or paid off.
Monthly obligations. Long-term debt, including student, credit card, or car loan payments, as well as alimony and child support.
Mortgage. A legal agreement in which a homeowner borrows money from a bank or other lender in exchange for taking title of a new home and with the condition that the conveyance of title becomes void upon payment of the debt.
Mortgage insurance. Also known as private mortgage insurance or PMI; “a policy that reimburses the lender if the borrower defaults on a home loan,” according to Bankrate.
Non-conforming loan. A type of conventional loan that’s provided by portfolio lenders and complies with guidelines set by a particular lending institution that’s underwriting the loan.
Origination. A process in which a homebuyer submits financial documentation (tax returns, payment history, credit card information, and bank balances) to a mortgage lender; lenders use this to determine an eligible loan type and interest rate for the homebuyer.
Property tax. A tax based on the value of a transaction or residential property that’s levied by the governing authority in which the property is located.
Title. The recognition of ownership.
Title insurance. An insurance policy that covers the loss of ownership interest in a home due to legal defects and is required if the property is under mortgage, according to Investopedia.
VA loan. A mortgage loan that’s provided by the U.S. Department of Veterans Affairs and guarantees home loans by qualified lenders, allowing veterans and military service people to obtain home loans on favorable terms.
Variable rate. Also known as a base rate; an interest rate on a loan that fluctuates over time based on an underlying benchmark interest rate or economic index that changes periodically.
USDA loan. A mortgage loan that’s “issued through the [U.S. Department of Agriculture] loan program, also known as the USDA Rural Development Guaranteed Housing Loan Program,” according to NerdWallet.