Purchasing a new home can be as exciting as it is intimidating. In addition to the numerous loan options and payment structures, there are mortgage-related words and terms that might be new to some. But don’t fret. We’ve provided a guide to some of the most frequently used terms to help you along the way.
AmortizationThe gradual reduction in the principal amount owed on a debt.
Appraisal FeeA fee that an appraiser charges to estimate the value of a property.
APRThe annualized percentage rate of interest charged on a loan.
Credit ScoreA number that rates the quality of an individual’s credit. The number helps predict the relative likelihood that a person will repay a credit obligation, such as a mortgage loan. In general, the higher your credit score, the more likely you are to be approved for and to pay a lower interest rate on a loan.
Down PaymentYour down payment is the amount you pay upfront for the property. A larger down payment may lead to a lower interest rate on your mortgage. If your down payment is less than 20 percent of the house price, you’ll buy private mortgage insurance and pay the premiums as part of your mortgage payments. This insurance reimburses the lender if you default on the mortgage.
FHAIn order to increase affordable housing in the U.S., the Federal Housing Administration (FHA), provides insurance on FHA-approved mortgage loans.
FICO ScoreYour FICO score is a method of calculating your creditworthiness and is used by the three major credit bureaus.
Interest RateAn interest rate on a home loan is the percentage of the loan you pay for borrowing the money.
- Fixed Rate - A home loan with a predetermined fixed interest rate for the entire term of the loan.
- Adjustable Rate - A home loan in which your interest rate and monthly payments may change periodically during the life of the loan, based on the fluctuation of market interest rates.
Loan OfficerA person whose primary responsibility is helping you through the loan process as well as processing your loan application.
Lock PeriodThe amount of time prior to closing that you can secure an interest rate for your loan.
Market Interest RatesLenders base their interest rates on market benchmarks such as the LIBOR or the weekly constant maturity yield on the one-year Treasury bill. Lenders use these rates to compare mortgages to other investment opportunities, such as bonds or lending to the government instead.
Prime RateThe U.S. Prime Rate is based on a survey of the prime rates of the 10 largest banks in the United States. The U.S. Prime Rate is used by some financial institutions to calculate variable interest rates for credit cards. Changes in the U.S. Prime Rate influence changes in other rates, including mortgage interest rates.
Property TypeInterest rates change depending on the type of property. Single-family homes are considered less risky and have lower rates. Multifamily properties, condos, co-ops, and mobile homes are considered riskier, so mortgages for these properties often have a higher interest rate.
PrincipalThis is the amount you owe in order to pay back the money borrowed from the lender, excluding interest.
It’s worth noting that these are just a handful of terms you’ll see during the home buying process. UHCU is here to help walk you through this process and help you understand what to expect along the way to homeownership.
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