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The Rosetta Stone of Home Loan Terms

The first thing you will notice when looking into a home loan is the odd and unfamiliar terminology being used. Frankly, it can be intimidating and overwhelming. Here are some of the more common terms use and their meaning.

Amortization occurs with every loan, but is a misunderstood concept. It simply refers to the repayment of the loan on a schedule. The schedule is typically monthly payments over a term of years.

If you are cash rich at the closing, you might want to investigate paying a discount point. It is the equivalent of one percent of the loan amount. By paying it, you can pay down the interest rate on the loan and save money over time.

When is the best time to start the loan process? This is a common question and leads us to the term pre-approval. You want to get pre-approved for a loan and lock in an interest rate. This allows you to shop for a home knowing exactly what you can spend.

The mortgage application is pretty much what it sounds like. It should be viewed, however, as only the first step in the process. You can expect the lender to ask for additional information and documentation.

Perhaps the simplest term to understand is equity. Equity is simply the amount you own free and clear of any debt obligations on your home. Equity grows as you pay down the mortgage balance. It also grows as the home appreciates. Over time, it can become a large amount.

The mortgage industry is full of terms that sound rather drastic such as underwriting. This simply refers to the evaluation process by an underwriter at the lender. These days, it is often a piece of software. It takes all your information, crunches the number and approves or rejects the loan.

Equity is obviously an important aspect of your home. You want as much as possible. One way to increase it is sweat equity. This is improvement of the property through your own efforts. Think Home Depot and weekends!

How does one tell who really owns a home? You look at the title. Title can be a complex subject, so you want the lender to do it. Lenders will actually require the hiring of a title insurance company to check the title and insure that it is free and clear. You have to pay for the search.

The concept of truth-in-lending is designed to protect you, the consumer. Finance is a complex subject, so this law requires the lender to provide you with written disclosure of all fees, conditions and terms associated with your loan.

Applying for a mortgage can be a hectic and stressful process. This is particularly true for first time borrowers. Before you go through the process, take the time to learn the language. Not only will you understand what is being said, but also you’ll be able to respond!

Article Source: http://www.topicinfo.com

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