It is not surprising when the consumer gets overwhelmed with real estate and mortgage terms. As professionals in this niche, realtors use language that many consumers simply do not understand. Here are a few of the most misunderstood mortgage terms to the consumer in the real estate and mortgage industry.
Acceleration Clause - A clause in a mortgage that allows the lender to require that the full amount of the principal become due and payable in advance of the payment date in the event the borrower defaults on the loan.
Term - The time schedule that is contracted by the lender and the borrower for repayment of a mortgage or other loan, typically 15 or 30 years.
Prepayment penalty - A penalty charged to the borrower by the lender for paying off the balance of a loan before the end of the term. This is a clause in some mortgage contracts to discourage borrowers from refinancing the loan or selling the home too quickly.
PMI - An acronym that stands for Private Mortgage Insurance. Issued by a privately owned company, it protects a lender from loss in the event a borrower defaults on the loan. Typically, PMI is required when a buyer puts down less than 20 percent of the sales price, or when an amount being refinanced is greater than 80 percent of the appraised value. Once the homeowner has 20% equity in their home, either by continued payments, appreciation, and/or a combination of both the monthly PMI is no longer required.
Pre-Approval - A process by which a prospective home buyer gets formally approved for a mortgage. It is a method of analyzing a home buyer's financial situation to determine creditworthiness and their ability to pay back a loan. Getting pre-approved by a lender gives a potential home buyer a stronger position when making an offer on a home because it shows the seller that a lender has essentially promised the buyer a certain amount of funds for the mortgage.
Pre-Qualification - An informal process by which a potential home buyer can get an estimate on how much money a lender might consider loaning for the purchase of a home. The formula used to determine how much home a buyer can afford takes into consideration income, debt, credit history and savings. However, since the prospective buyer has not actually applied for a loan, getting pre-qualified merely provides an estimate of the amount of the mortgage that may be received.
Prior to the buyer making an offer on a home, and with a sense of urgency, many of these terms are overlooked or misunderstood. It is important to be cognizant of these terms when considering a mortgage or real estate transaction.
Exclusive representation to buyers and sellers is a complex venture. Real Estate Homes, LLC philosophy has accomplished this with great success. For more information on real estate and mortgage terms or the Phoenix Real Estate or Tucson Real Estate markets, please visit Real Estate Homes, LLC where you can search for all available homes for sale.
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