As spring approaches, "For
Sale" signs are sure to pop up in everyones neighborhood. And, with
mortgage rates low, many people who have been considering buying their first home
will be out looking within the next few months.
excitement of buying a first home can often become discouraging by confusing mortgage
terms. Before you head to your credit union or other financial institution to
apply for a loan, become familiar with some common lending terms.
help you familiarize yourself with the language of a mortgage lender, the Credit
Union National Association (CUNA) offers these tips:
Fee: A non-refundable application fee covers the lenders costs on a loan
application, regardless of whether or not you end up with a mortgage. If granted
a mortgage, this fee is often applied to your closing costs.
A mortgage is secured by the value of a property. An appraisal gives the lender
assurance that the house has sufficient value to cover your mortgage request.
An independent appraiser, not a realtor, usually completes this. It is important
to note that an appraised value can differ from the purchase price.
Check: The lender will perform a credit check on you (and if youre married,
your spouse) to see if you pay your debts and what debts you have. You will have
to explain any unfavorable information reported. It is best to check your credit
report before applying for a loan to check for errors.
Payment: A larger down payment may allow you to negotiate a lower mortgage rate
because of the reduced risk to the lender. However, dont tap yourself out
the initial costs of owning a home may increase your need for cash.
Escrows are advance payments held in a separate account to protect the lenders
security interest in your property. For example, should you not pay your property
taxes and your property is seized, the lender no longer has the security backing
the mortgage. To avoid such scenarios, the lender requires at closing that funds
be placed in escrow and continue with each monthly payment to pay for taxes and
insurance as they come due. The lender may require escrow prepayment for as little
as one month or as long as a year. Commonly, escrow funds are used to pay property
taxes and any insurance, such as flood and homeowners, required by the lender.
Payment: Many first-time homebuyers are surprised that the monthly payment covers
more than the mortgage. Included is the mortgage payment (principal and interest),
plus the escrow amount.
Article continued at http://www.pacreditunions.com/commoncents2002/mortgage_language.htm