Buying a home is one of the biggest and important purchases you will make. The homebuying process from making an offer on a home to having the keys in your hands can sometimes be stressful and overwhelming.
Familiarizing yourself with the terms below can give you a better understanding of what to expect throughout the home buying process and may help eliminate the confusion and stress.
Mortgage
A mortgage is a loan for residential real estate with 1 to 4 units the borrowers apply for and repay monthly over a set number of years.
Pre-approval
Having a pre-approval completed by your lender will provide leverage and create a competitive advantage when you submit an offer on a home you want to purchase.
Income
Income documented by the last two years of W-2s, pay stubs, and if you are self-employed your last two federal tax returns.
Credit score
Having a credit score over 700 makes it easier to get approved. A lower score may also result in a higher interest rate.
Debt-to-income ratio
(DTI) Calculation of total gross monthly debts or payments divided by total gross monthly income.
Earnest Money
Earnest Money Deposit (EMD) is money you put in escrow when the seller accepts your offer/contract. The EMD shows good faith, and you intend to obtain a mortgage to buy the property. If you have signed off on all contingencies and decide to cancel the contract, the seller has the right to keep your deposit.
Closing Costs
Closing costs are fees paid at the close of a real estate transaction. Closing costs are 1% to 2% of the purchase price, depending on which state you live in and how your offer is written and accepted.
Private Mortgage Insurance (PMI)
If your down payment is less than 20% on a Conventional or FHA loan of the purchase price, you will have Private Mortgage Insurance.
Down payment
The amount of money paid upfront in escrow when the loan closes. In general, the down payment is 3% to 20% of the sales price or value of the property, which ever amount is less.
Budget
Your mortgage should not be more than 36% of your gross income each month. Total debt including your PITI (Principle, Interest, Taxes, and Insurance) in most cases should not be more than 45% of your gross income.
Escrow
A non-interested third-party that receives instructions and monies from both sides of the sale.
Closing
Closing is the final phase of the mortgage process where the loan is funded and home transfers title from the seller to the buyer.
Both your mortgage lender and your real estate agent will be able to further assist you if you have additional questions about the process of becoming a first-time homeowner.
Sacramento Mortgage Lender 