Spring has sprung in Columbus and with it comes colorful flowers, sunshine, baseball and home buying season. If you’re about to be a first time home buyer, familiarize yourself with the following nine terms – you’ll be glad you did!
- Fixed rate mortgage. This means the interest rate you pay on your home loan won’t change. Over the years, your mortgage payment will likely change some – property taxes may rise or your homeowners insurance might climb or fall. But, for the most part, your monthly mortgage payments won’t change.
- Adjustable rate mortgage. Also known as an ARM, this is essentially the opposite of a fixed rate mortgage. You’ll start off with a fixed rate for several years, then the interest rate adjusts according to the fully indexed interest rate, which is what the banks charge their most credit-worthy customers. As those interest rates climb, so too will your own interest rate and monthly payments.
- Pre-qualification. The process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan.
- Federal Housing Administration Loan. Also known as an FHA loan, these are excellent for first time home buyers and feature lower upfront costs and relaxed credit score requirements.
- Appraisal. A written analysis of the estimated value of a property prepared by a qualified appraiser
- Private Mortgage Insurance. Provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.
- Closing Costs. Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey. Closing costs percentage will vary according to the area of the country; lenders or realtors often provide estimates of closing costs to prospective homebuyers.
- Points. Points are pre-paid interest. The more points you pay, the lower your interest rate will be. One point is a charge equal to 1% of the loan amount. So if you’re buying a $200,000 house, and a lender is charging you 2 points, that’s $4,000.
- Escrow. Sometimes known as earnest money, escrow is a third party (neutral) account, to be delivered upon the fulfillment of a condition. When you look at a house, love it, make an offer and put down a deposit, that deposit would be put in escrow. The escrow account keeps your deposit safe.
If you’re thinking about a new house, we can help! The mortgage experts at Heartland Bank will guide you through the home buying process. Whether you’re a first time home buyer or a seasoned investor, we offer a variety of mortgage finance options and benefits. Be sure to browse our Mortgage Products and stop over to our Mortgage FAQ page for answers to some common questions related to the mortgage process. Or call any one of our 13 central Ohio locations today!