Basic Mortgage Terms

Basic Mortgage Terms



Basic Mortgage Terms
If it​ is​ your first time applying for a​ mortgage,​ there are a​ number of​ terms you​ should know .​
Educating yourself on​ the​ various mortgage terms you​ will run into will help you​ make better decisions when deciding which home you​ want to​ purchase .​
When you​ sign a​ mortgage contract,​ your home is​ used for collateral and it​ is​ your responsibility to​ make sure your payments are made on​ time each month.
The first term you​ should know is​ principal .​
The principal is​ basically defined as​ the​ amount of​ money you​ borrow for your home .​
Before the​ principal is​ provided you​ will need to​ make a​ down payment .​
a​ down payment is​ the​ percentage you​ will put towards the​ principal .​
The amount of​ the​ down payment will often depend on​ the​ cost of​ the​ home .​
Once you​ pay off the​ principal,​ the​ home is​ yours.
The next term you​ will need to​ know is​ interest .​
Interest is​ a​ percentage that you​ are charged to​ borrow a​ certain amount of​ money .​
Along with the​ interest rate,​ lenders may also charge you​ points .​
a​ point is​ a​ portion of​ the​ total funds financed .​
The principal and interest makes up the​ majority of​ your monthly payments,​ and this is​ a​ method that is​ called amortization .​
Amortization is​ the​ method by which your loan is​ reduced over a​ given period of​ time .​
Your payments for the​ first few years will cover the​ interest,​ while payments made later will be applied towards the​ principal.
A portion of​ your mortgage payments can be placed in​ an​ escrow account in​ order to​ go towards insurance,​ taxes,​ or​ other expenses .​
The next term you​ will hear a​ lot is​ taxes .​
Taxes are the​ amount of​ money that you​ have to​ pay to​ your state or​ government .​
When it​ comes to​ your home,​ these are known as​ property taxes .​
These taxes are used to​ build roads,​ schools,​ and other public projects .​
All homeowners must pay property taxes .​
Insurance is​ another important term that you​ will hear in​ the​ real estate community .​
You will not be allowed to​ close on​ your mortgage if​ you​ don't have insurance for your home .​
Home insurance covers your home against floods,​ fire,​ theft,​ or​ other problems .​
Unless you​ can afford to​ repair your home if​ it​ is​ damaged,​ it​ is​ usually a​ good idea to​ get insurance for your home .​
If your home is​ located within a​ zone that is​ known for having floods,​ federal laws may require you​ to​ have flood insurance.
If the​ down payment you​ put towards your home is​ less than 20% of​ the​ total value,​ you​ will often be charged additional premiums on​ your insurance by the​ lender .​
This is​ done to​ protect you​ in​ the​ event that you​ default on​ your loans and fail to​ make payments .​
Without this,​ many people would not be able to​ afford a​ house .​
Once you​ have paid off about 78% of​ the​ home,​ the​ lender will stop charging you​ insurance premiums.
These are the​ basic terms you​ will need to​ know before your purchase a​ home .​
Understanding these things will allow you​ to​ avoid many of​ the​ pitfalls that exist in​ the​ real estate field .​
You want an​ interest rate that is​ low,​ and you​ should always try to​ get a​ fixed interest rate if​ possible .​
This will allow you​ to​ focus your income on​ making payments towards the​ principal,​ and this will help you​ pay off the​ loan faster .​
a​ mortgage is​ an​ important part of​ your financial picture,​ and you​ want to​ make sure you​ pick a​ home that you​ can afford .​
If you​ fail to​ make your payments,​ you​ may lose your house.




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