Understanding the home loan process can be complicated, particularly with all of the loan-specific terms. Becoming familiar with frequently used lending terms may make the process less stressful. In this article you will find information on frequently used lending terms. This list, however, is not exhaustive.
Frequently Used Lending Terms
A pre-approval is paperwork written by a lender indicating the price and type of loan that a buyer may obtain given their monthly income, debt, and credit score. This is different from a pre-qualification, which offers simply an “unconfirmed” estimate. Full approval is typically issued after a buyer is under agreement for a particular property.
Home Loan Commitment
After a buyer is under contract for a property, a home loan provider reviews the financial paperwork and the information on the real estate. A mortgage commitment is later granted to verify that the primary requirements have been successfully reviewed and that the loan will be fully approved upon receipt of a few final items.
An appraisal is ordered by a home loan provider to verify the purchase price of a property. It is completed prior to a mortgage commitment or approval.
There are several typical fees related to buying and selling a property. These are referenced as closing costs. They can include broker commissions, transfer taxes, loan charges, attorney fees, title insurance, and local recording fees. Pre-paid expenses such as home owners insurance are often also lumped into the closing cost category, but they are officially a different type of charge billed at closing.
Title insurance protects against problems with a title and the fees associated with defending your ownership. Although title searches are performed before a closing, there are defects that affect your title to a property that are not easily found in a title search. Title insurance is a one-time expense at closing that remains valid for the entire time that you remain the owner of a piece of real estate.
Mortgage Insurance (MI)
MI is an acronym for mortgage insurance and is typically required on mortgages higher than 80% of the purchase price. There is commonly an up-front charge and a recurring fee, both based on the starting loan amount. MI stays on a loan until it is paid down to 80% of the sale price.
This is a guest blog post from Bill Tierney, an internet savvy REALTOR who covers the South Shore real estate market for William Raveis Real Estate in their Scituate, MA office. Bill can be reached via email at William.Tierney@Raveis.com or by phone at 781-545-1533. Bill has been a licensed real estate agent since 2004 and has extensive experience.