Not all of us are fortunate enough to make full cash offer to purchase their dream houses. Most of us have to go for mortgage loans in order to get it. These loans have monthly installments to be paid throughout the term of the mortgage. Therefore, it is wise to check out a few lenders and compare their rates before going out there and submitting your application.
Also, there are many things that mortgage lenders and bank consider before approving your loan. This means you will have to do your due diligence and understand a few terms used in mortgages. Here are a few such technical terms when it comes to mortgages:
Debt-income ratio: This is the ratio that will tell the lender whether you will be able to pay back the mortgage in time or not. To obtain this, the mortgage lender will have to consider all your monthly payments (including your mortgage) and then divide it by your monthly income.
Escrow: The Escrow payment refers to an amount which is over and above the P&I or Principal-and-interest portion of your mortgage payment. This is the T&I portion that is designated to be paid up for your real estate property taxes as well as your hazard insurance. It depends on the mortgage lender whether this escrow account will be maintained by him or you. There might be a change in the escrow amount whenever there is a change in the property taxes or insurance premiums.
Private mortgage insurance (PMI): In case the amount of down payment you make is less than 20% your mortgage lender may require a PMI or private mortgage insurance. This is a policy that will protect him from losing money in case you default in paying up the loan or end up in a foreclosure. PMI may also be required in case of mortgage refinancing if your equity is less than 20%.
Once you have understood these terms do your own research to make sure you are not entering into a wrong deal which will make you regret your decision for a long time.
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