When you go in search of a mortgage with which to purchase a home, you will encounter a variety of terms you may never have heard before.
The home loan market is complex and potentially confusing, especially if you’re a first-time buyer or if you haven’t gotten a mortgage recently. It’s important for borrowers to understand the process and terms involved, so they can make the most informed decisions about this important financial transaction.
Although your loan officer will be there for you throughout the process, to answer your questions and explain any terms you don’t understand, these are some of the most common terms you need to know.
Prequalification vs. Loan Pre-Approval
Before you begin shopping for the home of your dreams, you must visit a mortgage lender to obtain proof of your financial capacity to buy a house. In years past, a prequalification was usually sufficient. Today, you need to obtain a pre-approval – but what’s the difference? A prequalification is simply a way of determining, hypothetically, how much you may be able to borrow. A pre-approval is a conditional commitment based on the preliminary verification of your income, assets, debts and credit-worthiness.
Loan Origination Fee
On most types of home loans, you must pay an origination fee to the lender. This is how the lender gets compensated for making the loan to you. Although the amount of this fee varies from lender to lender and program to program, it can range anywhere up to 3% (or more) of your loan amount. If you’re a highly qualified borrower with a healthy down payment, or if you’re taking a jumbo loan, your origination fee could be much less.
Discount points or, more often, simply points, refer to a fee you may pay at the time of closing if you wish to buy down your interest rate. Some loan programs allow borrowers to lower their mortgage interest rate by paying a certain percentage of the loan in advance. Each point is equivalent to once percent of your total loan. The amount that points reduce your interest can vary but, typically, each point you pay reduces your interest by a quarter-percent (0.25). This fee, if applicable, is separate from the loan origination fee.
You may see this term in various forms throughout the process but it always refers to the four components of your monthly mortgage payment: principal, interest, taxes and insurance. Your PITI is the estimated amount you must pay on your home loan each month. This figure can change from year to year due to increases in property taxes, homeowner insurance premiums and, if applicable, interest rate adjustments.
Intercap Lending serves borrowers in Orem, Utah, and throughout the Salt Lake City area. Our helpful team has all the expertise and answers you need to choose the right home loan program for your needs. Contact us today to discuss your needs for a home purchase loan, refinance, reverse mortgage, HELOC, investment loan or any other type of home loan product.