We break down all of the mortgage terms you need to know when going through the home buying process.

Buying a home is a big deal, especially if it's your first time. There's lots to know before signing on the dotted line and closing on your dream home. From mortgage originator to closing, there are lots of terms specific to buying a home and the mortgage process. If you're looking for clarification on what certain mortgage terms mean, look no further!  

What is a Mortgage Originator? Plus Other Mortgage Terms Defined!

May 10, 2017

We break down all of the mortgage terms you need to know when going through the home buying process.

Buying a home is a big deal, especially if it's your first time. There's lots to know before signing on the dotted line and closing on your dream home. From mortgage originator to closing, there are lots of terms specific to buying a home and the mortgage process. If you're looking for clarification on what certain mortgage terms mean, look no further! 

Below is a simple and easy to understand dictionary of common mortgage terms. If you're getting ready to start on the hunt for your first home and looking into getting your first mortgage, read through all of these terms to prepare yourself for what is to come. 

Appraisal: a written assessment of a home based on a variety of factors, including but not limited to location, amenities, current condition, and local market. The appraisal will give a fair market value for the home and will help secure the funding at your preferred financial institution. 

Appraisal Fee: the amount the buyer will pay for the home appraisal, generally ranging from $300-$500 and paid up front and out of pocket. 

Appraiser: a qualified professional who provides objective, impartial, and unbiased opinions about the value of property. License, certification and title vary depending on state laws

Closingthe final step in solidifying the home sale and starts the new mortgage payment cycle. A closing date will be set during negotiations, generally 30-45 days after the initial offer. The seller and homebuyer will meet with any needed partners (title company, lender, escrow company, buyer/seller attorney) to sign all of the paperwork and transfer home ownership to the buyer. 

Closing costsall of the fees paid during closing, which range depending on state, lender, and title company. They are often split between the buyer and seller, the buyer generally spends about 2-5% of the home purchase price on closing costs.

Credit reporta detailed report of your credit history, which includes a wide range of information on your credit accounts, payments, and other financial data.

Down paymentthe amount of money a buyer pays upfront for a mortgage, based on a variety of factors. The buyer will usually put down 0-20% of the home purchase price, depending on stipulations made by the lender. Generally, a 20% down payment is needed to avoid paying PMI

Equity: the difference between the fair market value of your home and the current amount left on your mortgage. 

Escrow: consider this a security deposit on a home purchase. The buyer puts money into the escrow account to ensure the seller they have the funds to close on the home, as long as certain stipulations are met, such as passing inspection or appraising at a particular value.

Escrow account: an account at a non-interested third party used to deposit funds into while going through the mortgage process. Funds are distributed upon completion of outlined conditions and stipulations. An attorney or Title Company can act as the escrow account holder. 

Interest rate: the annual interest on a loan, based on a percentage of 100. The lower your interest rate, the lower your monthly payment. See Redstone's real estate loan rates here

Lock-in: a guarantee from a lender ensuring a certain interest rate for a specific time period.

Mortgage originator: the institution or individual who assists consumers with choosing the correct mortgage and facilitates the mortgage application and processing. 

Origination fee: the fee charged by the financial institution for processing the mortgage loan, usually 1% of the mortgage loan amount. 

Preliminary approval: a confirmation of the amount a lender will give you for a mortgage. You’ll complete a mortgage application and submit the necessary documentation so the lender can evaluate your financial picture. The lender will also check your credit rating. Having a preliminary approval letter shows a seller you’re serious about the sale and provides confidence in the transaction.

Preliminary qualification: the estimation a lender makes on what size mortgage they will offer based on varying factors; non-binding and highly generalized.

Principal: the amount of debt, not counting interest, left on a loan. 

Private mortgage insurance (PMI): a fee added to your mortgage payment if you made a down payment of less than 20%. PMI is used to protect the lender in case of default on the home payments. This way, if the home goes into foreclosure, the lender has a buffer of funds to help them recoup the cost of the mortgage.

Refinancingopening a new mortgage to pay off your current mortgage; usually to receive a better interest rate on the loan or change the term. May also choose to refinance to pay off debt quicker or have access to more cash per month. See if refinancing is a valid option for you with this refinancing calculator.

Term: the time period of your mortgage, usually spanning from 10 to 30 years.

Title: the legally-binding document that shows ownership of the property. The home title will be transferred from seller to buyer during the closing. 

Read next: The Mortgage Info You Need, All in One Place 

With all of those mortgage terms in your mind, you're bound to feel more prepared as you dive into the mortgage process. Check out all of our articles about buying a home to ensure you have all the information you need as you become a homeowner—whether for the first time or the fifth! 

Buying a Home?

Whether you’re a first-time home buyer or a seasoned pro, buying a home is an in-depth process. We've curated a list of our best articles about buying a home to give you some great resources. 

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