Homebuying Terminology 101: Essential Terms Every Homebuyer Should Know
On your homebuying journey, you may encounter unfamiliar new “lingo.”
For example, you may wonder how much of a downpayment you need or what your debt-to-income ratio should equal. Don’t worry. Read KFS Mortgage Company’s short guide on the essential homebuying terminology you need to know.
Mortgage Lender
A mortgage lender is a financial institution or mortgage company that offers and underwrites home loans. Mortgage lenders set the terms, interest rate, repayment schedule, and other key aspects of your home loan. You can expect to repay the home loan cost plus interest to the lender.
Down Payment
A down payment on a house is the cash that the buyer pays upfront in a real estate transaction. Typically, buyers put down 5 to 20% of the purchase price toward the cost of their home. For first-time homebuyers in Maine, some programs provide lower interest rates and down payment assistance for those who qualify.
Credit Score
Your credit score is the numerical representation of your credit history.
To dictate interest rates and loan terms, lenders check your credit score and history to assess your record of paying bills and debts on time.
You're entitled to one free copy of your credit report every 12 months from each nationwide credit reporting company. If your credit score could use repairing, there are many ways to improve your credit.
Debt-to-Income Ratio
Another important homebuying term to understand is the debt-to-income ratio (DTI).
DTI is a percentage that tells lenders how much money you spend on paying off debts versus how much you have coming into your household. You can calculate your DTI by adding up your monthly minimum debt payments and dividing it by your monthly pre-tax income. When you apply for a mortgage, you’ll need to meet maximum DTI requirements so your lender knows you’re not taking on more debt than you can handle.
Closing Costs
Closing costs are processing fees you pay to your mortgage lender.
Lenders charge these fees in exchange for creating your loan. Some typical closing costs include appraisal fees, origination fees, attorney fees, and title insurance. Your closing costs depend on the type of loan you take, but they usually fall between 3-6% of the total value of your loan.
Required Documentation
You’ll be responsible for providing your lender with documentation that proves your ability to repay your home loan.
For example, you must supply proof of income, such as W2s or 1099 forms. A lender will also ask to run a credit report to determine your credit history. They may also ask for statements to show your assets and liabilities.
Review KFS Mortgage Company’s pre-approval checklist for a more detailed list of the essential documents.
KFS Mortgage Company is Here to Help You
Now that you’ve learned some essential homebuying terms, you may still have more questions about your mortgage loan options.
Let our team of experienced mortgage professionals help make your homebuying experience the best. Our experts will compare the pros and cons of each loan option and ensure that you end up with a mortgage that’s right for you.
For more information, contact KFS Mortgage Company today.