Mortgage basics

Points, fees, and adjustable rates. If you are brand new to home buying, then mortgage terminology can be like reading Greek. But as the saying goes, knowledge is power. So use the following glossary of terms to raise your own awareness.

Adjustable Rate

Your interest rate is adjusted periodically, based upon an index.

Amortization

Paying off a debt over time. Part of each payment goes toward the loan principal and part goes toward interest.

Appraisal

The process of developing an opinion of a home’s market value, conducted by a licensed, professional real estate appraiser. Appraisals are used to determine if a home’s sale price (and the borrower’s requested loan amount) are appropriate.

Closing Costs

Expenses over and above the price of the property. Common closing costs can include origination fees, discount points, appraisal fees, title insurance, escrow fees and mortgage insurance.

Closing Disclosure

A Closing Disclosure is a five-page document that includes all final details about your mortgage, including your terms, monthly payments, fees and all other costs. Lenders are required to provide this document three business days before your scheduled loan closing.

Discount Points

Discount points are essentially one-time, pre-paid interest charges on your loan. Each point is equal to 1% of the total loan amount. Discount points can reduce your final interest rate and are tax deductible.

Down Payment

A portion of your total home cost that is paid up-front. A larger down payment can result in a smaller monthly payment and a lower principal balance.

Escrow

Your earnest money deposit is held in what’s known as an escrow account by a third party until the closing of your transaction. While this account is open, the borrower is considered to be in escrow.

Fixed Rate

Your interest rate will remain the same throughout the life of the loan.

Loan Estimate

Lenders are required to provide borrowers with an estimate of the fees that will be due at closing. Lenders must provide this estimate within three days of taking a completed application that includes the proposed property address.

Origination Fee

An origination fee is paid to the lender for the costs of processing the loan.

Refinancing

There may come a time during the life of your loan that you will wish to refinance. Perhaps you want to take advantage of lower interest rates or to consolidate debt. If you are eligible, in good credit standing, and with sufficient equity, you may be able to do just that. For more information the mortgage process, be sure to talk with a lender or your real estate agent.

Underwriting

This lender process is used to determine how much of a risk you and your mortgage would be to their company. An underwriter will evaluate such things as your credit history, assets, as well as your employment, income and current debts. They’ll also evaluate the value and condition of the purchase property.

This information is intended for general educational purposes and may not be applicable to every borrower. Find a Guild Mortgage Loan Officer in your neighborhood for personalized guidance about your situation.