If you are recently married, you might be looking towards your next big event together, buying your first home together! We find that going through the mortgage process can be similar to going through the Wedding Planning – there’s so much to learn, plan, budget for, it can get overwhelming! There are also First Time Home Buyer Programs that many banks in NC don’t offer!
This is a list of Mortgage Terms we’ve been handing each First Time Home Buyer who comes in to consult with us for the past 10 years or so. I figured I’d just put them online for everyone to see. If you are shopping for your first home, you might want to go over them.
It’s similar to the Mortgage Abbreviations list we did a few months ago, but actually this list focused on the “mortgage application terms” you might hear. Between the two Mortgage Terms “Cheat Sheets” you should be able to find all of the terms someone is using – but in case you hear one you are NOT familiar with – you can always call us!
Mortgage Terms You Should Know
Annual Percentage Rate (A.P.R.) – The actual interest rate for the projected life of a mortgage. This takes into account points showing the payment amount, interest, principal and unpaid balance for the entire term of the loan. It’s found on TIL – Truth in Lending.
Appraisal – Estimate of a property’s value as of a given date, determined by a qualified professional appraiser. The value may be based on replacement cost, the sales of comparable properties or the property’s ability to produce income.
Closing Costs – Cost payable by both seller and buyer at the time of settlement, when the purchase of a property is finalized. These costs can be up to ten percent of the mortgage amount. (It is sometimes written out as “CC”).
Closing Table – An industry slang term referring to the actual place the residential mortgage closing takes place (in NC it’s normally at a conference table at the attorney’s office).
Commitment Fee – A fee charged when an agreement is reached between a lender and a borrower for a loan at a specific rate and points in which the lender guarantees to lock in that rate.
Conventional Loan – A mortgage loan that is not insured, guaranteed or funded by the Veterans Administration (VA), the Federal Housing Administration (FHA) or Rural Economic Community Development (RECD) (formerly known as Farmers Home Administration.) Recently, the guidelines for these loans changed, and we are able to offer Conventional Loans with as little as 3% down payment.
Debt-to-Income-Ratio – The ratio between a borrower’s monthly payment obligation divided by his or her net effective income (FHA or VA loans) or gross monthly income (conventional loans). (It is sometimes written out as “DTI”).
Down Payment – The difference between the purchase price and mortgage amount. The down payment becomes the property equity. Typically is should be cash savings, but it can also be a gift that is not to be repaid or a borrowed amount secured by assets. This effects your Loan-to-Value / LTV.
Earnest Money – Deposit in the form of cash or a note, given to a Seller by a Buyer as good faith assurance that the buyer intends to go through with the purchase of a property.
Escrow – The holding of documents and money by a neutral third-party prior to closing; an account held by a lender (or services) in which a homeowner pays money for taxes and insurance.
FHA (Federal Housing Administration) – An agency within the Department of Housing and Urban Development that sets standards for underwriting as well as insures residential mortgage loans made by private lenders. Basic FHA Underwriting Guidelines require less time out of Bankruptcy, lower credit scores approved, and only a 3.5% down Payment.
First Time Home Buyer Programs – While many banks in NC do NOT offer NC First Time Home Buyer Programs, we do. There are two programs available, one of which, offers a forgivable 3% down payment GRANT. The programs do have sales price ceilings, and income requirements based upon the county you are buying a house in. The Best News?!? You do NOT have to be a first time home buyer to use the programs!
Fixed-Rate Mortgage – A mortgage whose rate remains constant throughout the life of the mortgage.
Good Faith Estimate – An estimate on closing costs and monthly mortgage payments provided by the lender to the home buyer within 3 days. It is sometimes called a “GFE”.
Homeowners Insurance – A form of insurance that protects the insured property against loss from theft, liability and most common disasters. (It is sometimes written out as “HO Ins.”)
HUD-1 – Required as part of the Real Estate Settlement Procedures Act (RESPA), the final HUD-1 or HUD-1A allows the borrower to know specifically the costs of the loan and to whom the fees are being allotted.
Lock-In – The guarantee of a specific interest rate and/or points for a specific period of time. Some lenders will charge a fee for locking in an interest rate.
Mortgage Insurance Premium (MIP) – Money paid to ensure the lender against loss due to foreclosure or loan default.
Origination Fee – A fee charged that a lender charges to originate and close a mortgage loan. Origination fees are usually expressed in points.
PMI – PMI is a “general term” that many folks use to cover ANY form of Mortgage Insurance. In reality – PMI is the Mortgage Insurance that covers Conventional Loans. It protects the Bank from the instance of Default. If someone can’t pay their mortgage, then the Mortgage Insurance will pay the bank a PORTION of the mortgage (usually less than 25%) to cover their loss of payments and the cost to “get rid of” the home, legal fees, etc. FHA PMI is actually referred to as FHA MIP, and USDA PMI fees are called a “Guarantee Fee.” VA PMI Fees are not charged on a monthly basis (right now) and vary based upon whether the Veteran has used the program previously – or not.
Pre Qualification – Tentative establishment of a borrower’s qualification for a mortgage loan amount of a specific range, based on the borrower’s assets, debts and income.
Qualified Mortgage or QM Rule – The Qualified Mortgage Rule came into effect on January 14, 2014 as one of the results to the Dodd Frank Reform Act to protect consumers from predatory lending practices. The reality is that in NC, we’ve had much stricter Predatory Lending Practices than any other state since 2003. The biggest change for us, here in NC, are the restrictions regarding upfront points and fees that can be paid on behalf of the borrower. In years past, we had a 3% ruling (which is the QM Rule) however fees like PMI and Attorney fees where not calculated into the formula as they are now.
Title Insurance – A policy issued by a title insurance company insuring the purchaser against any error in the title search. The buyer, the seller or both may pay for the cost of the title insurance.
USDA Home Loans – USDA Home Loans are part of the US Department of Agriculture Rural Development Project. They’ve been around for more than 30 years, and are specifically designed to “beef up” the population in the more rural areas of our Country. In NC, every County has some portion that qualifies for a USDA Home Loan, and the loans require NO down payment.
First Time Home Buyer Programs NC
As a First Time Home Buyer in NC – it’s important to know that there are a couple of programs that are available to you that many banks and lenders in NC don’t have access to. There’s both a mortgage tax credit for First Time Home Buyers, and there’s a 3% down payment assistance program available. Both of these programs allow folks to get into a little larger house than they would normally be able to purchase – and we offer both of them!
Those who qualify for the First Time Home Buyer Programs we offer through NCHFA can receive up to a 3% Grant! This money can be used towards your Down payment, or your closing costs, has no monthly payments, and is forgivable over time. It is designed to help folks who have been renting for the last three years.
We can also help you structure your contract so that the Seller works with us to cover all, if not most of your closing costs on your first home! There are some of these closing costs, pre-paid items and fees that the Seller “can’t” pay, or won’t pay. You should be prepared to pay for the Inspection of the home, you will have to pay for your Home Owners Insurance, and your part of the taxes.
There are two parts to the NC First Time Home Buyer Program – first, you might qualify for a mortgage tax credit. The Tax Credit (called MCC) can add up to an additional $2000 a year to your income, allowing you to qualify for a slightly bigger home. The NCHFA Program also offers 3% in a Down Payment / Closing Cost Assistance Grant that is forgivable, and carries no interest.
Both of these programs can be used in combination with the USDA Home Loan Program NC, FHA Home Loans and VA loans.
If you have more questions about First Time Home Buyer Tips, or terms you are seeing, or hearing about a home, or the mortgage process – please call us, or leave a note below! We try to answer all questions as soon as possible. Call Steve and Eleanor Thorne 919-649-5058
Many First Time Home Buyers are looking for Mortgage Rates Raleigh or the Best Mortgage Rates for your area in NC – there are several questions you should remember to ask besides just “what are your Cary NC Mortgage rates?”