Confused by all the mortgage terms out there?

When you’re buying a home for the first time, you’re likely to encounter a host of mortgage terms and acronyms. Find them a bit confusing? You’re not alone! Real estate really has a language of its own. At Primary Residential Mortgage, we’re committed to home buyer education. We know you’ll feel a lot better on closing day if you take a few minutes to learn what some of the most common mortgage-related terms mean:

PITI. This acronym is short for principal, interest, taxes and insurance. These four things combined will make up all or most of your monthly housing payment.

Closing costs. These are costs associated with the transfer of a property from one owner to another. Closing costs do not include the purchase price of the property but do include things such as the cost of an appraisal, the buyer’s credit report fee, the cost of a title search, title insurance and recording and processing fees. Buyers and sellers typically each pay a portion of the overall closing costs. Sellers, for example, customarily pay the commissions of the real estate agents involved in the sale. Closing costs also are called ‘settlement’ costs.

FHA, VA and USDA. FHA is short for Federal Housing Administration, an agency that is a popular source of low-down payment home loans. VA is short for Veterans Affairs, an agency that has a popular home buying program for military personnel and veterans. The USDA – the U.S. Department of Agriculture – also has a low-down payment home loan buying program. These agencies aren’t actually providing loans to home buyers with minimal down payments; they are providing guarantees to encourage private lenders to do so. Ever heard the term ‘conventional’ loan? That’s simply a loan made without a government guarantee.

Loan Estimate. This is a document that borrowers receive from lenders after submitting a mortgage application. Lenders are required to provide you with this 3-page form within 3 business days of receiving your application. It contains important information, including an estimated interest rate, monthly payment and closing costs.

Closing Disclosure. Your lender is required to give you the Closing Disclosure form at least 3 business days before you close on the mortgage loan.This form details all costs associated with making and closing your home loan. You’ll find your loan’s APR, or annual percentage rate, here. Is your APR higher than the rate quoted by your mortgage company? It’s okay. It’s typically higher because the APR takes into account not only the mortgage rate but other costs associated with the loan that you’re responsible for, such as origination fees and discount points. On this form, you’ll see your loan terms, your projected monthly payments and your closing costs.

Origination fee. This is a fee paid to a lender for processing your home loan. It’s typically paid in the form of up to 1 percent of your total loan amount. Don’t confuse this fee with discount points. Each discount point, equal to 1 percent of the total loan amount, can be paid to lower your interest rate. Discount points are actually prepaid interest on your mortgage. The more points you pay, the lower your interest rate.

Amortization Schedule. This handy document shows how much principal and interest is applied to each payment and illustrates the payoff process over the life of your loan.

Pre-approval. If you’re shopping for a home, you’ll want to be pre-approved for a mortgage loan before making an offer. Pre-approval demonstrates to a home seller that you may take out a loan up to a certain amount based on your income, credit score and debt load. Pre-qualification is a much more cursory check by a lender and doesn’t mean you’ll actually get approved for a home loan.

Finance your home with Primary Residential Mortgage. Where the Primary focus is you. Just give us a call: (360) 903-7890.