Buying a home is a significant milestone, whether you’re a first-time buyer or an experienced homeowner. Navigating the real estate market can be complex, and understanding key terms is crucial to making informed decisions.
At Pinnacle Bank, we’re committed to helping you achieve your homeownership dreams with confidence. From understanding APR to the intricacies of escrow, this guide will equip you with the knowledge you need to make sound financial choices.
Before Buying
APR
Short for annual percentage rate, APR is how much your loan will cost over the course of a year. This figure is almost always higher than the interest rate, because it takes into account the interest charged as well as fees or additional costs associated with the loan. Since all lenders use the same formula, it can be a more effective way of comparing mortgages rather than just the interest rate.
Closing costs/settlement fees
The costs, in addition to the price of the property, that buyers and sellers are charged to complete a real estate transaction. Costs include loan origination fees, discount points, appraisal fees, title searches, title insurance, surveys, taxes, deed-recording fees and credit report charges.
Escrow
An account held by a neutral third party (called an escrow agent) who works for both the lender and the borrower. There are two main types that are used for real estate purposes – purchase and mortgage escrow accounts. Purchase escrow accounts are used to safely hold money when a homebuyer successfully bids on a home and provides a deposit to assure the seller that the buyer is serious about purchasing the home. Mortgage escrow accounts may be required by lenders to cover costs such as property taxes and homeowner’s insurance. After an initial deposit, borrowers pay into the escrow monthly – usually as part of the mortgage payment and the account is maintained by the mortgage servicer.
Loan Estimate (LE)
The Loan Estimate is a three page document homebuyers receive once they apply for a mortgage. It provides potential homebuyers with important information about the loan request, such as the estimated interest rate, monthly payment and projected closing costs for the loan. It also provides information on estimated taxes and insurance. Potential homebuyers may use the form to compare offers from other lenders to ensure the homebuyers receive the best deal.
Mortgage broker
An individual or company who connects borrowers and lenders for the purpose of facilitating a mortgage loan. Unlike a mortgage lender, a broker does not make the loan or service the mortgage. A mortgage broker may represent various lenders or may offer loans from one single source.
Points
Borrowers can pay a lender “points” to reduce the interest rate on the loan, resulting in a lower monthly payment. The cost of one point is equal to one percent of the loan amount. Depending on the borrower, each point lowers your interest rate by one-eighth to one one-quarter of a percent.
We hope this glossary of housing terms has provided you with valuable insights into the home buying process.
Whether you’re ready to apply for a mortgage or simply exploring your options, our team of experts is available to answer your questions and guide you through the process.
Together, let’s make your dream home a reality–visit your local brand today.