Here at the Domench Team, we understand how hard it can be to buy a new house, which is why we pride ourselves on our customer service. Making things easier on you is our number one concern.
Here is a guide to some of the most common terms that you need to know when buying a house, and if you have any questions, please don’t hesitate to call 360-524-2587 today!
Annual Percentage Rate (APR):
Simply put, APR is your total cost of borrowing money from a financial institution. It reflects the interest rate you will pay each year on borrowed money, as well as any points, mortgage broker fees, and other fees to secure the loan.
Adjustable Rate Mortgage (ARM):
As opposed to a traditional fixed-rate mortgage, an adjustable-rate mortgage has an interest rate that can increase or decrease at certain points during your loan term. The interest rate of your ARM is dictated by the financial index set by the Federal Reserve or the London Interbank Offered Rate. However, most ARMs start with extremely low, or even below-market rates.
Closure Disclosure (CD):
Our lending team will provide a five-page closure disclosure form at least three business days before you “close” on your mortgage loan. Your CD provides the final details of your loan, allowing you to compare your terms and costs with those of your loan estimate. It also gives you time to ask us any questions!
Debt-to-Income (DTI) Ratio:
Your debt-to-income ratio is calculated by dividing your monthly debt payments with your gross monthly income. Ultimately, your DTI impacts your ability to borrow (along with your credit score). In most cases, a 43 percent debt-to-income ratio is the highest a borrower can have, with a few exceptions, and still receive a qualified mortgage.
Fair Isaac Corporation (FICO):
Fair Isaac Corporation is a private data analytics company that focuses on credit scores. More specifically, they measure consumer credit risk and package it as a FICO credit score. FICO scores have become a fixture in consumer lending. Most financial institutions using them to determine whether or not they are willing to provide you a loan.
Federal Housing Administration (FHA):
The Federal Housing Administration provides mortgage insurance on loans produced by FHA-approved lenders in the U.S. With FHA insurance, and lenders are able to protect themselves against losses associated with an unpaid principal balance of a defaulted mortgage. However, these loans must meet certain requirements set by the FHA.
Loan Estimate (LE):
A loan estimate is a three-page document that we will send you within three business days of receiving your application. Most LEs will include estimates on the interest rate, monthly payment, and the total closing costs of your loan. We try to make our LEs as clear and straightforward as possible.
Letter of Explanation (LOX):
A letter of explanation is something we may ask you to write to detail specific financial information, anything that may be cause for concern. Don’t worry, this is a common request and usually a good sign. We often request an LOX to complete the loan application process.
Loan-to-Value (LTV) Ratio:
Much like your credit score or DTI ratio, we may calculate a loan-to-value ratio to determine how much risk is involved with your secured loan. It measures the relationship between the loan amount and market value of the asset, in this case, your new home. A LTV ratio greater than 80%, on a mortgage not backed by the FHA, may mean you have to buy private mortgage insurance.
Principal, Interest, Taxes, and Insurance (PITI):
PITA is a way of condensing the components of your mortgage payment into a single sum. Principal, interest, taxes, and insurance are usually quoted and calculated in monthly terms so we can compare it to the borrower’s monthly gross income. This, in turn, allows us to determine the front-end and back-end ratios, which we use to approve loans.
Private Mortgage Insurance (PMI):
Private Mortgage insurance, as you can probably guess, is a type of insurance provided by private companies instead of the FHA. You might be required to pay for PMI on a conventional loan to protect the lender, particularly if you are refinancing, or you put down less the 20% of your new home’s purchase price. PMI is usually included in your monthly mortgage payment.
Paid Outside of Closing (POC):
Paid outside of closing is a broad term that covers additional fees not considered a part of your mortgage. Some of these additional costs may include appraisal and home inspection fees. In other words, any fee outside of your down payment and closing costs is considered a POC fee.
Contact Us Today!
We here at The Domench Team pride ourselves on helping the citizens of Vancouver, WA purchase and move to the home of their dreams. We also believe in making the process simple and straightforward, with no surprises. If you have any additional questions about the home buying process, or you would like to learn more about our services, please call 360-524-2587 today!