Ever read a home loan document or mortgage blog and felt like your old high school Latin teacher wrote it? Between industry jargon and apparently meaningless acronyms, many potential homeowners become understandably overwhelmed. (Just between us… even industry experts have to rely on their favorite online search engine for half the terms).
Not to worry. This month, we’re walking you through some of the most common mortgage definitions that current and potential owners can expect to come across.
But before jumping into the fourth installment, refresh your memory with Mortgage Definitions You Need to Know: Part 1, Part 2 and Part 3. Ready? Let’s continue studying.
Private Mortgage Insurance (PMI)
A private mortgage insurance (PMI) policy is typically required when the down payment for a house is less than 20% of the purchase price. This protects the mortgage lender, since a lower down payment usually means higher default risk. Depending on the type of home loan, this could be a monthly payment, an upfront lump sum, a yearly fee or a combination of those payments.
Processing Fees
You can expect to pay a processing fee as part of your one-time closing costs (when you finalize your home loan). The payment covers the behind-the-scenes work of information gathering and accurate documentation for a mortgage loan.
Rate
Your rate is the amount charged on top of the principal, or the percentage reflecting the cost you pay to borrow money (Investopedia, 2021). This number may also be known as the interest rate.
Servicer
In a homebuying transaction, the servicer (Consumer Financial Protection Bureau, 2020) is the organization acting on behalf of the lender to administer loans. This is the company that actually collects the mortgage principal, interest, and escrow payments from a borrower. They will also send you your mortgage statements and manage the day-to-day maintenance of your loan.
VA Loan
As part of its mission to serve the nation’s military members, the U.S. Department of Veterans Affairs provides several housing benefits to service members and their families, including assistance with home loans. Current service members, veterans and eligible surviving spouses of members of the armed forces can apply for a VA-guaranteed loan through any mortgage lender that participates in the VA Home Loan Guaranty Program. One of the biggest VA loan benefits is the option to pay 0% toward the home’s down payment without paying for mortgage insurance. Borrowers will still need to meet the lender’s credit and income requirements, and the home must be for their personal occupancy.
Homeownership should be simpler than an array of acronyms and pervasive industry jargon. The good news? Simply studying up can seriously help you along the path to homeownership.
Published on April 25, 2022
