Buying a home can be a complex process, and for many people, it’s the largest transaction they’ll ever complete. It’s important to know the details of what you’re getting into, and at Altius Mortgage and our partners at Mortgage Ogden, we’re here to help with these.
One part of this is understanding numerous terms that might come up while you look for mortgage loans. Here are some of the key terms to know, with simple definitions.
Appraisal is a process to tell you exactly how much the home is worth. It will tell you how much to offer on a home, and will help determine how much a lender is willing to lend.
APR is short for Annual Percentage Rate, which is simply the rate of interest that will be applied to your home for the entire year. Remember that this is not a monthly mortgage rate, but a yearly one.
A balloon payment refers to the balance of the loan that will be due at the end of the term. Many interest-only loans have balloon payments, and construction loans do as well. By the time this payment is due, you must either have paid it in full or refinanced the loan.
Collateral is what the bank can collect if you default on the loan. In a mortgage, the collateral is the home itself.
Down payment is the amount you pay to the home out of pocket. It’s generally between 10 and 20 percent of the home’s value, but you can qualify for a much lower one in some cases.
Foreclosure is the process the bank goes through when someone stops paying on a home mortgage. The bank takes the home back, and requires the borrower moves out.
Principal is the original borrowing amount, while interest collects on top of this.
If you aren’t able to put up the requisite down payment, some lenders require you take private mortgage insurance to protect them from risk. This is not the same as homeowner’s insurance, which protects you.
A short sale is when you try to sell the home for less than you owe on the mortgage. The lender will agree, and may either forgive the remaining balance or ask you to pay on the difference.
The term simply refers to the length of the loan, which can range from 10 years to 30 years.
Want to learn more mortgage terms, or interested in any of our programs? The brokers at Altius Mortgage are here to help.