If getting a home loan scares you, this post is for you. Bankers and lenders work in a highly regulated industry. It has a language of its own. Unless that’s your job, you might not know all the vocabulary. That’s okay, most people don’t know all the jargon for what you do either.
Getting a home loan doesn’t have to be confusing. It just takes a little work to understand the process and the terms.
At WestWind Homes, we want to put the dream of homeownership within everyone’s reach. So often we meet individuals who want something better for themselves and their families. Some of them have been turned down for a home loan before. Others admit they don’t know the first thing about the process. However, they have the courage to start on a journey. We’re almost always able to help them reach their destination.
One of the ways we do so is by providing resources and sharing knowledge. We’re about to share words to know when you’re getting a home loan, but we’re also available to answer your questions in person. If you don’t see what you’re looking for here, or our article doesn’t answer your questions, please feel free to get in touch.
Credit Terms When You’re Getting a Home Loan
We can help you fix bad credit and get a home loan. Words related to your credit are as follows:
Available credit – This is how much you could spend if you used all your credit from every available source. For example, if you have a $200 limit on your card and you’ve spent $20, you have an available credit of $180.
Balance – The total amount you owe on any credit card debt, car payment, student loan or other obligation.
Collection accounts – If you had a debt you didn’t pay over a period of time, that amount might have been charged off and sold to a collection agency. That agency will try to get you to pay back all or part of that debt. Collection accounts refers to the total number of accounts you have handled by a collection agency.
Credit and retail card debt – This is the total dollars and cents you owe someone from charging it on a card. This could be to MasterCard, Visa, Rent-a-Center, a jewelry store or anyone else.
Debt-to-income ratio – This important number compares how much money you make with how much of that you need to pay your current obligations.
Delinquent – This means you’re late in paying, typically by 30, 60, 90 or 120 days.
FICO score – Fair Isaac Corporation (FICO) issues credit scores lenders use to evaluate applicants. The score is a three-digit number between 300 and 800.
Installment debt – This is a loan with a fixed payment like an auto loan. The exception is home mortgages.
Maxed out – This measures the number of open credit and retail cards where you’ve charged 90 percent or more of your limit.
Common Words Your Lender Will Use
Lenders use terms you don’t hear in everyday language. If you brush up ahead of time, you’ll both start out on the same page. Here are some of the words and phrases to know when you’re getting a home loan.
30-year fixed mortgage – The typical home loan gets paid out over this time frame. You also hear about 20-year and 15-year fixed mortgages.
Adjustable Rate Mortgage (ARM) – This type of home loan has a fixed or set interest rate for a term, usually the first months or years. After that, the interest rate can go up or down every year.
Amortization – This is how your loan gets paid off. Think of it as a chart that breaks down how much of your payment goes toward what you borrowed and how much is interest.
Annual Percentage Rate (APR) – This is the amount of money you pay in interest on what you borrowed for your home. It includes fees, points, any closing costs you financed and everything else you sign for at closing. It indicates the lender’s charge for using their money over time.
Bridge loan – People use a bridge loan as a short term loan against one property to buy another. For example, you might use it to buy a house while you wait for your old home to sell.
Construction loan – If you’re building a home, you’ll get a short-term loan that pays for your home to be built. Then, you’ll later repay that with a long-term permanent loan. This is also sometimes called a combination loan.
Conventional mortgage – This type of loan isn’t backed by the government.
Earnest money – When buyers make an offer on a property, they often give earnest money as a sign of good faith or to show they’re serious about completing their purchase.
Escrow – A third party holds money for specific purposes. When you’re getting a home loan, it’s common for lenders to request an outside source hold money for your property taxes and insurance. When those payments come due, they pay on your behalf. You see that amount come out as part of your monthly payment, but it gets paid when it’s due every year.
First time home buyer – A borrower who has never before purchased a home using a mortgage frequently qualifies for special discounts and perks.
Fixed Rate Mortgage – This is the opposite of an adjustable rate mortgage. You pay the same interest rate for the term of our loan.
Gift Letter – If your friends or family members gave you money you’re going to use toward your home purchase, your borrower will likely ask you to provide a gift letter.
Good Faith Estimate – This document summarizes how much you’re borrowing and gives an estimate of any additional charges you’ll need to pay at closing. It’s not exact, but lenders provide it so borrowers know what they can expect.
Loan-to-value – Lenders compare what your property is worth to what you’re putting down and express that in percentages. For conventional mortgages, buyers usually put 20 percent down to arrive at a loan-to-value of 80 percent.
Underwriter – The individual at your lending institution who approves or denies your home loan.
Closing Vocabulary When Getting a Home Loan
Appraisal – This report evaluates and gives an official estimate of your property’s value. An appraiser looks at square footage, condition, what other similar properties have sold for and a range of other factors.
Closing – On your closing date, you’ll meet at a title company or attorney’s office to sign paperwork. Once buyer and seller have signed, the buyer gets possession of their new home and the seller receives money from the lender.
Closing costs – In addition to the interest you’ll pay on your loan, there are other fees due at closing. You should get a breakdown of lender fees, third-party charges, taxes and transfer fees before your closing date. Sometimes people finance all or part of their closing costs as part of their home loan.
Deed – This official, public document establishes who owns the property.
Lien – When you’re getting a home loan, your lender or mortgage holder has a claim against your property until you pay off that loan. Lien is another word for legal claim.
Maturity – The life span of a mortgage. For example, a 30-year mortgage will come to a mortgage in 30 years. At that time it should be paid off.
Mortgage Payment – Your mortgage payment is the amount you’ll pay monthly. Much of the time it includes the principal, property taxes, insurance and any other amount financed.
Origination fee – The percentage of the loan the bank or other lender charges to complete the process.
Possession – This is when you actually take control of the property. In rare situations, the seller will give the buyer access before closing. Sometimes the seller rents the property back from the buyer for a short term. However, the norm is possession upon closing and funding.
Private Mortgage Insurance – If you aren’t able to put 20 percent down on your property, sometimes lenders require you to purchase mortgage insurance (PMI) at an additional monthly fee.
Title Insurance – The title company provides this protection against any lawsuits and claims that might come up against your property while you own it. They research previous owners to make sure there aren’t any other liens or claims that could challenge yours.
Getting a Home Loan Made Easy
WestWind Homes has a number of tools to make getting a home loan easy. If you’re looking at a specific home and you wonder what your payment would be, try our mortgage calculator. We have strong relationships with some of the nation’s top mortgage companies and financial institutions. We have financial advisors who have extensive training in helping Texans evaluate the type of loan they need to obtain their dreams. Everyone’s situation is different, but a financial advisor can give you a better idea what time frame you can expect and what you’ll need for success.
We’ve been helping families move into brand new homes since 1993. If you have questions or you’re ready to start the process, speak with one of our experts. Schedule a free confidential consultation today.