Entering the world of home buying can often feel like stepping into a different language. Terms like 'escrow', 'PMI', 'APR' might sound like confusing jargon at first. But don't worry, Steve Wilcox and his team, one of the best Utah mortgage lenders, is here to help you understand these important mortgage terms.
Mortgage
Starting with the basics, a mortgage is a loan you take out to buy a home. It's a legal agreement between you, the borrower, and the lender. The home you're buying serves as collateral for the loan.
Principal
The principal is the amount of money that you borrow for a home loan. If you buy a $300,000 home and make a 20% down payment ($60,000), your principal would be $240,000.
Interest
Interest is the cost of borrowing money. It's essentially the fee that Utah mortgage lenders charge for lending you money. Interest is usually expressed as a percentage of the principal.
Escrow
Escrow is a legal concept where a third party holds funds until certain conditions are met. In terms of mortgages, your lender might set up an escrow account to pay property taxes and insurance on your behalf.
Down Payment
The down payment is the upfront money you pay when buying a home. The amount often depends on the type of loan. For example, for an FHA loan Utah homebuyers might only need to put down 3.5% of the home's purchase price.
Private Mortgage Insurance (PMI)
PMI is a type of insurance that you might need to pay if your down payment is less than 20% of the home's price. It protects the lender in case you default on your mortgage.
Fixed-Rate Mortgage
A fixed-rate mortgage is a loan where the interest rate remains the same throughout the term of the loan. This means your monthly payment stays the same, which can be helpful for budgeting.
Adjustable-Rate Mortgage (ARM)
An adjustable-rate mortgage, or ARM, is a loan where the interest rate can change over time. The rate is usually fixed for a certain period and then can go up or down based on a market index.
Annual Percentage Rate (APR)
The APR is a broader measure of the cost of a mortgage because it includes the interest rate plus other costs such as broker fees, discount points, and some closing costs.
Loan-to-Value Ratio (LTV)
The LTV ratio is a comparison between the loan amount and the value of the property. Lenders use this ratio to assess risk. The lower the ratio, the less risky the loan is for the lender.
Amortization
Amortization is the process of paying off your mortgage over time through regular payments. An amortization schedule shows how much of each payment goes towards the principal and how much goes towards interest.
Closing Costs
Closing costs are fees associated with finalizing your mortgage. They can include loan origination fees, appraisal fees, title search fees, and more.
Pre-Qualification & Pre-Approval
Pre-qualification and pre-approval are processes where a lender assesses how much you might be able to borrow based on your financial situation. It can be a helpful first step in the home buying process.
As your trusted Utah mortgage lender, Steve Wilcox and his team are here to help you navigate these terms and many more. Understanding mortgage terms is a crucial part of your home buying journey, and we're here to support you every step of the way.
Refinancing
Refinancing is when you replace your existing mortgage with a new one. Homeowners often refinance to take advantage of lower interest rates, change their loan term, or switch from an adjustable-rate mortgage to a fixed-rate mortgage.
Underwriting
Underwriting is the process where a lender determines if the risk of offering a mortgage loan to a particular borrower is acceptable. In this process, your financial situation is evaluated, including your credit score, income, and the home's value.
Equity
Equity refers to the portion of the home that you truly own. It's the difference between your home's current market value and the remaining balance on your mortgage. Equity can increase over time if your home's value rises or as you pay off more of your mortgage.
Foreclosure
Foreclosure is a legal process that lenders may initiate if the homeowner fails to pay the mortgage. In this case, the lender can take possession of the home, evict the homeowner, and sell the property to recoup their costs.
Debt-to-Income Ratio (DTI)
Your DTI ratio is a comparison of your monthly income to your monthly debt payments. Lenders use this ratio to assess your ability to manage your monthly payments and repay borrowed money.
Understanding these terms can help you navigate the world of home buying and mortgage lending with confidence. As one of the best Utah mortgage lenders, Steve Wilcox and team are dedicated to empowering you with knowledge and guiding you through the process of securing an ideal mortgage for your dream home. We are always here to answer your questions and clarify any concepts you might find confusing.
Home buying is a journey, and every journey begins with a single step. If you're ready to take that step, whether it's your first or next home, or even an
FHA loan Utah residents have been eyeing, reach out to Steve Wilcox. Let us guide you home.
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Primary Residential Mortgage, Inc. NMLS#: 919520 Utah DRE Mortgage Office License # 8335595. MLO 0117736. MC3094-122. All loans subject to credit and property approval. PRMI NMLS 3094. PRMI is an Equal Housing Lender. Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice.