BORROW
12
mortgage words
you need to know before you buy your first home BY AMANDA SPURGEON
Making the move from renter to homeowner this year? Don’t get discouraged by tricky vocab. Here are some common words you might hear along the way:
1. Adjustable-rate mortgage (ARM)
An adjustable-rate mortgage is a loan with an interest rate that changes based on market fluctuations. ARMs may initially have a lower interest rate than a fixed-rate mortgage, but keep in mind that that rate could go up, which may result in a higher monthly payment.
2. Annual percentage rate (APR)
Your annual percentage rate, or APR, includes your loan’s interest rate, discount points (see 8) and other financing costs. The higher your APR, the higher your payment will likely be over the life of the loan. The APR is usually higher than the interest rate, because it encompasses multiple loan costs
3. Down Payment
Your down payment is the amount of money you’ll put toward the sale price of your future home. It reduces
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the amount of money you’ll have to borrow. How much money you need to put down depends on the type of loan you choose. Mortgage lenders generally require between five and 20 percent, though some first-time home buyer programs offer mortgages with down payments as low as 3 percent.
4. Earnest money
Earnest money is essentially a cash deposit you make to the seller if they accept your offer to buy the home. It’s a way to tell the seller you’re good for the rest of the money and you won’t back out before the sale is completed. If you do back out, the seller can usually choose to keep your earnest money.
5. Escrow
Escrow is when an impartial third party holds on to something of value during a transaction. That earnest money check you write to the sellers? It’s held in escrow by a third party until you and the seller come to a final purchase and sale agreement so that no one can use it as leverage to affect the loan terms.
