Learning About Mortgage Terms

Learning about mortgage terms before applying for a mortgage even if you’re a pro to this or a first timer to apply, there are certain terms that you should be aware of. Learning these mortgage basic words will help you make better decisions on which home you decide to purchase. When signing a mortgage contract, your home is used for collateral and it is your sole responsibility to make sure that all payments  are paid on time every month.

Here are the terms that you should know before applying for a mortgage:

• Principal– This is basically defined as the amount of money you borrow for your home. Before the principal is provided you will need to make a down payment.

FACT:  Home Buyers Inventory guarantees you the purchase price of your home for the entire term of your lease. You would then ask the bank to give you this much money for your Principal loan.

• Down Payment– A down payment is the percentage you will put towards the principal. The amount of the down payment will often depend on the cost of the home. Once you pay off the principal, the home is yours.

FACT:  Here at Home Buyers Inventory, any down payment you make, as long as you execute your option to purchase the home at a later agreed upon & guaranteed time and price, your down payment goes toward your purchase price of the home.  This is will be seen as a very good step on your part, in the eyes of the bank you go to get your mortgage from.

• Interest– Is a percentage that you are charged to borrow a certain amount of money. Along with the interest rate, lenders may also charge you points.

FACT:  Home Buyers Inventory does NOT charge interest while you are renting the home.  

• Points– A point is a portion of the total funds financed. The principal and interest makes up the majority of your monthly payments, and this is a method that is called amortization.

FACT: When you pay points through the bank, it does cost money.  Points are usually 1% cost of the mortgage you are applying for. However, even tho points cost you money up front it reduces the interest rate you pay the bank over your mortgage time.  It can reduce the Annual Percental Rate (APR) from .25% upwards to over 1%, so it may be worth inquiring with your mortgage broker when you go to get your mortgage.

• Amortization– Is the method by which your loan is reduced over a given period of time. Your payments for the first few years will cover the interest, while payments made later will be applied towards the principal.

FACT:  Depending on how long your mortgage term is, your first 10 years could all be interest.  As of today mortgage interest can still be written off on your taxes each year. Check with your accountant or person who does your taxes.

A portion of your mortgage payments can be placed in an escrow account in order to go towards insurance, taxes, or other expenses.

• Taxes– Taxes are the amount of money that you have to pay to your state or government. When it comes to your home, these are known as property taxes. These taxes are used to build roads, schools, and other public projects. All homeowners must pay property taxes.

FACT:  Depending on what city you live in will dictate your tax rate.  Take this into consideration when you are purchasing a home. As shared earlier, taxes go toward building schools.  Therefore, if you have the best school district you will be paying more taxes. That is definitely worth it if you have little ones.

• Insurance– Is another important term that you will hear in the real estate community. You will not be allowed to close on your mortgage if you don’t have insurance for your home. Home insurance covers your home against floods, fire, theft, or other problems. Unless you can afford to repair your home if it is damaged, it is usually a good idea to get insurance for your home. If your home is located within a zone that is known for having floods, federal laws may require you to have flood insurance.

FACT:  Home Buyers Inventory does require you to carry renters insurance on the home.  You provide us a copy of your policy each year. You should shop around for the best agent and coverage of renters insurance when purchasing. You never want to be without renters insurance, as you never know what could happen.  

Renters insurance is one of those things that fall under The Benjamin Franklin axiom that “an ounce of prevention is worth a pound of cure” it is as true today as it was when Franklin made the quote.

These are the basic terms you will need to know before you purchase a home. Understanding these things will allow you to avoid many of the pitfalls that exist in the real estate field. You want an interest rate that is low, and you should always try to get a fixed interest rate if possible. This will allow you to focus your income on making payments towards the principal, and this will help you pay off the loan faster. A mortgage is an important part of your financial picture, and you want to make sure you pick a home that you can afford. If you fail to make your payments, you may lose your house.

We have a FAQ’s section that can help you  learn more about our our Rent To Own Program.