If you’re buying a home for sale in Scottsdale
, you’ll need to become familiar with some common mortgage terms. Here’s a quick list to get you started; your real estate agent can fill in the gaps or answer specific questions.
Basic Mortgage Terms You Should Know if You’re Buying a Home in Scottsdale
Commonly called an ARM, an adjustable-rate mortgage is a loan that has a fluctuating interest rate. You’ll have an initial period during which the interest rate doesn’t change (usually 1, 3, 5 or 7 years). After that, your interest rate can go up or down, based on what’s happening with new mortgage interest rates.
Annual Percentage Rate
An annual percentage rate, or APR, is the rate of interest you’ll pay back to the mortgage lender.
Amortization is a schedule of how you’ll pay back your loan, including the amount you borrowed, the interest rate you’re paying and the term of the loan. The result is a monthly breakdown of how much goes toward interest and how much goes toward the principal.
Closing costs are costs of doing business. They can include title fees, attorney’s fees, recording fees and other costs involved with a mortgage closing. You’ll pay them on closing day.
Your debt-to-income ratio is a comparison of how much money you bring in each month and how much you pay toward obligations like credit card payments, rent or mortgage, or the repayment of personal, student or commercial loans.
The down payment on a home is the amount of the purchase price you’re paying out of your pocket, without borrowing from a lender.
Equity in a home is the difference between the home’s value and how much you owe the lender on it.
A fixed-rate mortgage is a loan in which the interest rate is the same over the loan’s entire life.
Homeowner’s insurance protects you from losses in the event of a disaster or catastrophe. It also protects your lender from losing the money on the home if the home is destroyed.
A mortgage is a loan for the purchase of a home.
Points are a percentage of the mortgage loan amount. In some cases, you can get a lower interest rate by purchasing points, which are typically 1 percent of the home’s purchase price. If you’re buying a $100,000 home, for example, one point would be $1,000.
Principal is the amount of money you borrow from the lender. It doesn’t include the interest you’ll pay on the home.
Private Mortgage Insurance
Commonly called PMI, lenders require private mortgage insurance when you put down less than 20 percent of your own money to buy a home. The one exception is with a VA loan; on those, lenders are not allowed to make you purchase private mortgage insurance if you have less than 20 percent down. PMI protects the lender in case you default on your payments. You can usually stop paying for private mortgage insurance once you’ve built up 20 percent equity in your home.
Most lenders require you to buy title insurance, which protects the lender’s investment if something comes up that challenges your ownership in the home. You can also buy owner’s title insurance to protect yourself if something like that arises.