Demystifying Mortgage Jargon: An Expert’s Guide to Navigating Loan Lingo
In my three decades of experience, I’ve seen how knowledge is power in the world of home loans. It’s common to feel lost trying to juggle all the jargon and mortgage rate terminology that comes along with the mortgage process. So, I’m here to clear up the confusion! Here are some common mortgage terms you’ll encounter and what they really mean. From the meaning of escrow to underwriting, I’ve got you covered.
1. APR
The APR, or Annual Percentage Rate, is a reflection of the total cost of borrowing over a year. Unlike the interest rate, which only covers the cost of borrowing, the APR includes fees and other costs associated with the loan.
2. Principal
The principal is the amount of money you borrow from the lender, excluding interest and fees. It’s the initial loan balance on which your interest is calculated.
3. Amortization
Amortization is the process of paying off your loan over time through regular payments. Each payment typically covers both interest and principal. Early on, your payments will mostly cover interest, but as time goes by, a larger portion will go toward the principal, increasing your equity.
4. Escrow
Escrow is a third-party account used to hold funds for property taxes, homeowners insurance, and other related expenses. Escrow takes place during the time in between when your offer is accepted and when you have the keys in hand.3. Find a Real Estate Agent
A knowledgeable real estate agent is invaluable in your home buying journey. I have many wonderful realtors in Pittsburgh that I would be happy to recommend to you. Give me a call to learn more.
With your budget and pre-approval, you’re ready to start looking for your new home. Make a wish list: Identify your must-haves and preferences in a home, including location, size, and amenities. Attend open houses, visit properties, and get a feel for the neighborhood to narrow down your choices.
5. LTV
The LTV, or Loan-to-Value, ratio measures the amount of your mortgage compared to the appraised value of the property. It’s calculated by dividing the loan amount by the property’s value and multiplying by 100. A lower LTV often means better loan terms and lower interest rates.
6. Rate Lock
A rate lock is an agreement between you and your lender to lock in your interest rate for a specified period. This means that even if market rates rise, your rate will remain the same.
7. Underwriting
Underwriting is the process by which your lender assesses the risk of lending to you. The underwriter will take into account your financial history, credit score, employment status, and more to determine under what terms your loan will be.
8. DTI
Your DTI, or Debt-to-Income, ratio is the percentage of your monthly income that goes toward paying debts, including your mortgage. Lenders use this ratio to gauge your ability to manage monthly payments and repay the loan. What is a good DTI ratio? That will mean something different for everyone. For advice on your personal financial situation, get in touch!
Wrapping Up
Still feeling unclear on some terms? Check out my other blogs for information on VA loans, do’ and don’ts when applying for a mortgage, and so much more! If you have any questions or need further clarification, don’t hesitate to reach out. I’m here to help you feel confident and knowledgeable every step of the way!
