The terms in real estate seem endless. As promised, here’s a few more terms you might hear as a buyer.
Down Payment: This is the amount the buyer will pay up front in a transaction. It is the difference between the mortgage amount and the purchase price. The down payment depends on the type of loan you have. For example, conventional loans can require between 5 – 20% down on a home, but with an FHA loan, the down payment is typically 3.5%. Talking with your lender is the key. They will help you understand how much you can borrow, what type of loan best fits your situation, and calculate your down payment.
Private Mortgage Insurance (PMI): PMI is required for buyers if they have a down payment less than 20% of the home’s value. The charge is typically included in the monthly mortgage payment. This insurance protects the lender if you default on your loan. Buyers can ask that the PMI be cancelled once they’ve built equity of 20% in their home. Again, talking with your lender is essential.
Earnest Money: A deposit that is made by the buyer as a sign of good faith regarding your intent to purchase.
Annual Percentage Rate (APR): The true cost of your loan. The APR will be higher than your interest rate because it accounts for fees and costs associated with your loan. Comparing APR will help you choose the loan that is best for you.
Fixed Rate Mortgage: Exactly as it sounds. This is a mortgage with a fixed interest rate through the life of the loan (whether it’s 15 to 30 years).
Adjustable Rate Mortgage (ARM): The opposite of a fixed rate mortgage. The interest rates fluctuate during the life of the loan depending on select market indicators. While interest rates can vary, there is typically a limit on how much and how often the interest rate can change.
As mentioned previously, there are so many terms associated with real estate, it’s difficult to learn and remember them all in one post. Hopefully this has been helpful in creating a better understanding of what you hear or have heard as a buyer.
Believe you can and you’re halfway there. –Theodore Roosevelt