Buying a home can be an overwhelming process, especially for first-time homebuyers. However, you can minimize anxiety—especially in the home loan process—by understanding some of the key mortgage terms and concepts prior to signing on the dotted line. Here are five key home-loan concepts we at GVC Mortgage want to make sure you know.
1. Gross Income
When you’re being considered for a mortgage, the lender looks at your gross income. Your gross income is your total earnings before any taxes or deductions are taken out.
2. Conventional Loan
A conventional loan is based solely on the homebuyer’s credit history, income, and ability to meet the loan’s requirements for down payment. Traditionally, according to Bankrate.com, the expectation with a conventional loan is that the buyer will already have a down payment of somewhere between 5 and 20 percent of the purchase price. This type of home loan is harder to acquire and isn’t insured by the FHA or guaranteed by the VA.
3. Private Mortgage Insurance (PMI)
Many homebuyers have to pay for private mortgage insurance—or PMI—if they cannot contribute a large enough down payment at the time of purchase. PMI adds an additional monthly fee to your mortgage and protects the lender in case you—the borrower—default on the home loan contract.
4. Closing Costs
Buying or selling a home is a legal transaction. Therefore, you may have to pay to make everything legal and for the proper paperwork to be filed. The costs associated with closing on the home sale—from title work to attorney fees—are called closing costs. The closing costs are in addition to any down payment you put toward the purchase price of a home.
If you as the homebuyer default on your home loan contract, the lender has the right to repossess the property. This process requires specific legal action, and you as the homebuyer will have to give up all your rights to the house. You can avoid foreclosure by making all your mortgage payments on time, based on your contract with the lender.
Want to learn more about these or other mortgage terms before you take out a loan? Schedule some time with one of our home loan professionals at GVC Mortgage of Carmel, IN. We’ll gladly walk you through the home loan process and help you determine what type of mortgage might be best for you. To schedule a free consultation, contact GVC Mortgage today at (317) 564-4906.