Buying a home is a very exciting process. Especially when it is the first home. During the mortgage process, however, you might start to hear some terms that you aren’t quite familiar with and don’t apply to other typical loans, like a car loan. Of course, your agent and mortgage lender are there to help you through the process, but it’s a good idea to learn some of the terminology ahead of time to be more prepared. Here are some common terms from the team at GVC Mortgage.
Adjustable-Rate Mortgage (ARM)
An adjustable-rate mortgage, or ARM, is a mortgage that will occasionally adjust the interest rate, and coincidentally the payments, over the life of the loan. A fixed-rate mortgage will keep the same interest rate throughout the loan.
This one is pretty simple. Amortization is simply paying off debt over time through monthly payments. A portion of your payment each month will go towards the interest and part will go towards the principal balance. Over time, a continuously larger portion will go towards the principal.
The debt-to-income ratio compares the amount of money you bring in each month to the amount of money you spend on other debts, like credit cards, car loans, or personal loans. All in, including the house payment, you want this number lower than 36%.
Beyond the price of purchasing the home, there will be certain closing costs like the loan origination fee, discount points, insurance fees, survey fees, and attorney’s fees.
Earnest money is the “good faith” money you pay to the sellers to prove your intent to pursue a mortgage for the property.
Escrow is money placed with a third party to be held and used for certain payments like taxes and insurance. The down payment will also be placed in escrow until the loan is closed.
Private Mortgage Insurance (PMI)
PMI is insurance provided by a private third party that protects the mortgage lender against financial loss. This is usually required when you put less than 20% of a down payment towards the loan.
Now that you’ve got some terms down, you can start exploring your mortgage options and GVC Mortgage is here to help. Contact us today at (317) 564-4906 with any questions or to begin the application process.