Mortgage and Home Buying Terms: A-D

Sometimes one of the most complicated aspects of purchasing a new home has nothing to do with finding the perfect builder and the best neighborhoods, but instead it's understanding what you are getting into with a mortgage and closing of your loan. A good lender will take the time to explain things to you, but if you'd like a little bit more insight into the lingo, our next few articles will act as a good guide to mortgage terms. The next couple of articles we publish will help demystify the language of mortgages and lending with some simple glossary items. This article covers important terms A-D. Adjustable rate mortgage (ARM) - This is a type of mortgage where the interest rates on the outstanding balance vary and are dictated by a specific benchmark. Normally there is a period of time where the rate is "fixed" or will not move, and then after that time period the rate begins to move according to a specific index or benchmark. Amortization - The period of time you will owe principal and interest to the lender. Amortization Schedule - A schedule that provides a breakdown of the interest payments comprised of principal and interest at any point during the amortization period. Annual Percentage Rate (APR) - The yearly interest rate of a mortgage. The APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan. Buy-down - A party to the loan can subsidize the mortgage by lowering the interest rate during the first few years. Buy-downs can be over the life of the loan or more often cover an initial time period. During this time period the payments are low but once the subsidy expires the payments will go up. Closing Costs - These are expenses incurred by both buyers and sellers during the transfer of property ownership. These may include origination fees, taxes, insurance, transfer fees and a wide variety of other costs that can make up the closing costs. These are typicaly several thousand dollars on a home loan. Conventional Loan - A mortgage not insured by the FHA or guaranteed by the VA. Credit Report - The history and current status of a borrower's credit standing. This report reflects unpaid debts, delinquent payments, and other credit indicators to assess a borrowers eligibility to qualify for a particular loan or interest rate. Debt-to-Income Ratio - A borrowers long-term debts divided by gross monthly income. Stay tuned for more terms to help you purchase a new home.