Once you enter the realms of homeownership, a mortgage typically becomes a major part of your life. Here are some terms to get familiar with about mortgage:
Debt-to-Income Ratio: This is a calculation of your monthly debts and regular expenses versus your gross income.
APR: Your APR, or annual percentage rate, is the amount of interest you pay on your mortgage.
Refinance: Refinancing your home means that you’re replacing one mortgage with another. Many people choose to refinance their homes to lower their rate or cashing out.
Fixed-Rate: A fixed-rate mortgage is a conventional type of mortgage that remains fixed through the terms of the loan.
ARM: or adjustable rate mortgage, is a type of home loan where your APR adjusts on a scheduled basis. You may start out with a certain APR, but you should know that it could change for higher or lower depends on the market.
FHA: An FHA loan is another type of conventional loan with a fixed rate. This borrowing option is backed by the Federal Housing Administration and often allows buyers to qualify for a mortgage more easily than other home loans by allowing lower down payment.
Down Payment: This is a lump sum of money that a buyer pays toward the price of their home. Lenders often require that anywhere between 5%-20% of a home’s price is paid up front on a conventional and 3.5% on an FHA loan. VA loan can be $0 down.
PMI: A private mortgage insurance. If less than 20% for a down payment on a conventional home loan, lender may also require that a borrower pay PMI, or private mortgage insurance.
Foreclosure: Once borrower fails to pay on their home loan, they may be forced into foreclosure.
Short Sale: Another option for lenders when a buyer fails to repay their mortgage is a short sale. This is when a home is sold for less than the remaining balance of the mortgage.