I have been in the Phoenix AZ real estate market for quite some time. As a result of that experience I have been involved with many transactions. As a active buyer’s Realtor, I have stayed in touch with the mortgage financing side of the transaction with my clients and their mortgage broker. Further, I have purchased and sold homes, land and investment real estate personally. Thus, I have been involved with mortgage financing for myself.
I tell you all of this ‘experience’ because I probably get more questions about the mortgage and lending industry than I do about real estate. And, with my experience, I still do not have all the answers. It is a confusing process with a language all its own. The mortgage finance process often intimidates buyers.
After receiving several questions just this morning from an experienced Scottsdale AZ real estate investor, I thought it would be helpful to add a little pocket dictionary of terms and definitions that may alleviate some apprehension real estate buyers may have.
Alternative Financing – non-traditional mortgage products that are (typically) more aggressive such as high interest rate loans and adjustable rate mortgages.
Closing Costs - Closing costs are the expenses associated with buying real estate. Some of the items that may be included, among others, are:- the loan origination fee or a point, charged for the lender’s costs of processing the loan
Pre-Paids - The items detailed on the Settlement HUD1 known as “pre-paid items and reserves”; The pre-paid items include monies for taxes, homeowner’s insurance, and mortgage insurance (if applicable) to be put in an escrow account by the lender.
FHA Loan – A government mortgage that is insured by the Federal Housing Administration (FHA).
Pre-Payment penalties – These are a fee charged to the mortgage holder if they pay-off their loan prior to a set period of time
Points - Mortgage points describe certain charges to be paid in order to obtain a mortgage on a home. Each mortgage point is a fee based on one percent of the total amount of the loan. There are 2 types of’ ‘points’ ; loan origination an discount points.
PMI - This type of insurance is usually only required if the downpayment is less than 20% of the sales price or appraised value (in other words, if the loan-to-value ratio (LTV) is 80% or more). Once the principal is reduced to 80% of value, the PMI is often no longer required
Title Insurance - indemnity insurance against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens. Title insurance is principally a product developed and sold in the United States as a result of the comparative deficiency of the US land records laws. It is meant to protect an owner’s or lender’s financial interest in real property against loss due to title defects, liens or other matters.
I need to point out that I am not a mortgage brokers. You should always ask your lender or loan officer to better explain these terms and any other questions or fine print that concern you BEFORE you sign loan documents.
I wish you all the best of luck and Happy house hunting.
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Copyright © James Wexler *Will 4.5% Interest Rates be enough for the Phoenix AZ real estate market??*
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