Understanding the terms 

Talking with lenders is much less intimidating when you understand the terms they use. Get familiar with some common terms listed below!

Image by Jesse Roberts

 

THE TERMS

DOWN PAYMENT

The portion of the purchase price not covered by the loan program you qualify for, must be paid in cash at closing, could be anywhere between 20% of the price and $0 depending on which loans you qualify for

EARNEST MONEY

a good-faith deposit you pay the seller when we agree upon a contract to purchase, usually around 1% of purchase price, held by a neutral third party, refunded to you if you cancel the contract, credited to you toward down payment when we close

CLOSING COSTS

the money it takes to get your loan started, includes loan origination costs (origination fee, appraisal fee, etc...) and pre-payment of a few months of taxes and insurance; paid at closing in addition to your down payment

PRINCIPAL

the amount of money you owe on your loan

INTEREST

money you pay the lender for the use of their money, the lower the rate, the less you pay back in addition to the principal

AMORTIZATION

the bank calculates the repayment plan so you pay the same amount of principal and interest each month for the loan term; at the beginning your principal balance is high, so a large portion of your payment pays the interest; each month your principal balance is a little less, so the interest is less, so a greater portion of your payment goes to reduce your principal balance

LOAN TERM

the number of years/months your loan is amortized to pay off; the shorter the term, the higher your payments, but the less interest you'll pay; you can always pay extra (which reduces principal) to pay your loan off faster

PITI

your total payment will include Principal and Interest (which doesn't change) and also Taxes and Insurance (your mortgage company collects a monthly amount then pays them once or twice a year when they're due, this amounts are re-calculated each year as the costs change)

DEBT RATIO

the percentage of your income needed to pay all of your payments, including your new mortgage payment; your lender calculates this to figure out how much loan you can qualify for

CASH RESERVES

A cash savings you'll have after paying your down payment and closing costs, may influence what kinds of loan you can qualify for

Want more info?

(719) 355-3788

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Priority Home Realty Group    •    17025 Lovaca Dr, Peyton CO 80831    •    Colorado License # EC 100028484     •      REALTOR®