Demystifying Mortgage Terms, Part II

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This is the second part of a series of mortgage terms that SELCO Mortgage Officers are often asked to explain.

Now that we’ve covered some of the common loan approval conditionsit’s time to explore other often confusing acronyms and terms that pop up over the life of a mortgage.

Here’s a short list of terms describing everything from mortgage insurance to different types of loans. By the time you go through this list, you will be good and ready to buy a home.

GPA

Private Mortgage Insurance (AMP) is an insurance policy that protects a lender’s investment in a home while allowing you to become a homeowner without putting down 20% or more.

PMI expenses, which range from 0.25% to 2% of your loan balance per year, remain until you hold at least 20% of your house.

ESCROW

You can think of a escrow account as a storage facility for additional required costs that are not part of the mortgage, esp. Escrow accounts are used both before buying a home and throughout the term of your loan.

  • The process of buying a house. To protect both parties in a home sale, the buyer will deposit a good faith deposit (also called an “early payment”) which will be held in escrow until the transaction closes. If the purchase is successful, the deposit is applied to the buyer’s deposit. Otherwise, this money can be confiscated from the seller of the house.
  • Taxes and insurance. Some people choose to pay property taxes and home insurance separately in a lump sum. For the rest of us, taxes and insurance costs are added to the monthly mortgage payment and stored in an escrow account. When the bills are due, the lender uses the escrow funds to pay them on your behalf. Small payments over the year are usually felt less than one large payment, but the choice is up to the homebuyer.

CONVENTIONAL/VA/FHA/USDA

If you’ve looked into a mortgage, you’ve probably come across some of these conditions before. Here is a quick breakdown of the most common mortgage programs offered by lenders:

  • Conventional. It’s the The most common mortgage program. With a solid credit score, a favorable DTI, and a large down payment (usually 10% or more, but some as low as 3%), you should find a flexible loan with great rates.
  • VIRGINIA. The U.S. Department of Veterans Affairs (VA) program allows veterans to get a home loan with advantageous conditions and without deposit.
  • FHA. Federal Housing Administration (FHA) loans may be the most attractive option for first-time buyers due to lower down payment requirements (as low as 3.5%) and less stringent credit requirements. Keep in mind that you will need to have a PMI if your down payment is less than 20%.
  • USDA. The United States Department of Agriculture (USDA) program is designed to help rural home buyers buy and modernize their homes.

THE VS. CD

The fundamental difference between a Loan Estimate (LE) and Closing Disclosure (CD) is in time.

An LE, which lenders provide within three days of receiving a mortgage application, contains estimated numbers that can (and often are) changed.

A CD is a final fee breakdown with little or no changes that you will receive before your mortgage closes. Three days later, you close the deal by signing the final documents.


Familiarizing yourself with these mortgage terms will give you a head start when it’s time to buy a home. If you come across other confusing terms in your search, be aware that SELCO Mortgage Representatives are here to help in any way they can.

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