Essential Mortgage Loan Terms to Know

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Buying a home is exciting, but the process can seem overwhelming. Taking on a major financial responsibility is simplified with our team of professionals at Call Federal. We understand the need to know your budget and get educated on mortgage fundamentals. 

The first part is knowing the language of mortgages. Read on for some essential mortgage loan terms to get you started!

Credit

Along with your ratio of debt to income, your employment, and the amount of your down payment, your personal credit is a major factor in qualifying for a mortgage. It also can affect the rate you’ll pay and how much financing is offered.

Debt Ratio

Your debt-to-income ratio is all of your monthly debt payments divided by your gross monthly income. This figure is one way lenders determine your ability to take on a mortgage payment. A lower debt ratio is preferred, especially when applying for a mortgage.

Down Payment

The down payment on your house is the amount you pay upfront in order to secure your home loan. Making a down payment shows you’re committed to the process and will be a responsible borrower. Down payment amounts can differ depending on your loan.

Government programs such as those of the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA) allow a lower down payment if you qualify. But, if your budget allows, making a larger down payment could help you get a better rate and save you money in the long run.

Interest Rate & APR

Your rate is your borrowing cost, expressed as a percentage of the loan amount. Mortgages are often discussed in terms of their APR (annual percentage rate), which factors in fees and other charges to show how much the loan will cost each year. There are two general types of mortgages: fixed-rate and adjustable-rate.

We offer fixed-rate mortgages in 10,15, 20, and 30-year terms. A fixed-rate mortgage has the same interest rate for the whole term, giving you more consistent monthly payments and the ability to avoid paying more interest if rates go up.



Mortgage Loan Term

Each mortgage has a term during which the balance must be paid off (also known as amortization). At Call Federal, we offer terms as short as 10 years or up to 30 years.

Most first-time buyers opt for the popular 30-year mortgage, which spreads out the loan over many months to keep payments lower. Keep in mind, a longer-term allows more time for interest to add up.

PITI

PITI stands for principal, interest, taxes, and insurance. Together, these four components of your mortgage make up your total payment. This payment will be compared to your current gross monthly income to ensure affordability. As a rule of thumb, housing costs should be less than 30% of your monthly income.

Title

When you buy your home, the property’s legal ownership (or title) will transfer from the seller to you.

Before the sale, a title company performs a title search to confirm the property’s legal ownership, and you will need to buy title insurance to protect you and the lender in case of a dispute over the property. The property’s title is recorded by your local government, and recording fees will be included in your closing costs.

Closing Costs

These are the fees you’ll need to pay upfront in addition to your down payment. Your closing costs will include a loan origination fee, prepaid interest, title insurance, and your initial deposit. Be sure to ask about any specific fees that may apply. Closing costs are typically about 2% to 5% of the total cost of your loan.

Be In The Know With Mortgage Loan Terminology to Stay on Track!

Now that you know some essential mortgage loan terms, get to know our Mortgage Checklist! This is a free tool to use that ensures you don’t miss a step in the process.

Use your knowledge of the above terms and the checklist to be confident in your search for your new home!

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