So you're ready to say 'bye' to renting and 'hi' to being a homeowner. You'll probably encounter lots of new people, professions, and terms along the way. Here's theSkimm on that last part.
Amortization: The breakdown of a loan payment in terms of principal vs. interest. Hint: it’s typically more interest at first. Because interest amounts get smaller as the total debt does.
Appraisal: What a licensed professional says a property is worth. Based on its condition, the sale price of similar homes in the area, and whether that area is expected to get more popular.
APR: Stands for annual percentage rate. It’s what you’re charged for borrowing money. Like for a credit card or mortgage. Play it like golf: aim low.
Adjustable-Rate Mortgage (ARM): A mortgage where the interest rate (and your monthly payments) can change. Up to a limit. Typically comes with lower payments at the beginning. Also goes by variable-rate mortgage.
Assessed Value: What a tax expert says a property is worth. It’s the number they’ll use to determine your property and real estate taxes.
Closing Costs: The fees, insurance, and taxes paid to close a mortgage deal. They can add up to 2-5% of the total loan amount and are usually paid by the buyer.
Contingency: Something that has to happen before a real estate sale becomes official. Like the inspector giving a thumbs up, the loan coming through, the appraisal lining up, or the buyer selling their current home.
Debt-to-Income (DTI): The percentage of your monthly gross income used to repay debt. It’s what lenders look at to evaluate whether you can be trusted with a new loan. Experts suggest staying under 36%.
Down Payment: Cash money you pay during a home purchase. Typically between 3-20% of the sticker price. Typically, the more you pay upfront, the less you’ll owe over time.
Foreclosure: What happens when you can’t pay back your mortgage. And your lender sells your home to the next highest bidder.
Interest: How lenders make money off you. Interest is what gets added to your principal, meaning you end up paying back more money than you initially borrowed.
Loan-to-Value (LTV): The amount of money borrowed divided by your home’s appraised value. In human terms, the percentage of your home that you own vs. owe. Helps lenders decide how much interest to charge you.
Principal: The amount of money you owe without interest rate strings attached. As you make payments over time, the principal will go down. And so will your stress. Namaste.
Private Mortgage Insurance (PMI): A fun little ‘extra’ lenders tack on when they think you’re a risky borrower. Usually only for people who put down less than 20%. Juuust in case you ghost on your payments.
Underwriting: The part where all your info gets verified and your loan application gets evaluated. And you cross your fingers for approval.
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