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5 Mortgage Closing Terms Every Buyer Should Know
There are many factors to consider when you are buying a home. When it comes to the closing process, the CEO of Riverside Abstract, a title insurance agency in Brooklyn, NY, suggests that it is a good idea to know the terminology that will be discussed. This can help you understand everything that is discussed and can make the situation more comfortable and professional.
During our visit to Riverside Abstract, we find out what those terms are and we will share it with you with a proper explanation.
ANNUAL PERCENTAGE RATE (APR) - Reflects the cost of all credit and finances as determined by the length of a year. This includes the interest rate, points, broker fees, and other credit charges obligated to the buyer.
PRIVATE MORTGAGE INSURANCE (PMI) - is required if a borrower puts a down payment that’s less than 20% of the home’s value.
It is included in the mortgage payment and is charged monthly. Its role is to protect the lender from possible default.
DOWN PAYMENT - This is the amount a home buyer pays in order to make up the difference between the purchase price and the mortgage amount. Experts from the title insurance agency, advise that it is not recommended to be less than 10% to 15%. According to Riverside, any amount over 20% of the purchase price is often recommended. It may be required to avoid having to pay for private mortgage insurance.
LOAN ESTIMATE (LE) - Details the terms of your loans along with the estimated closing costs. The Consumer Financial Protection Bureau (CFPB), requires the lender to issue a Loan Estimate within three business days of receiving the mortgage application.
CLOSING COSTS - May also be referred to as transaction costs or settlement costs. These costs may include or be related to application fees, title examination, title insurance, property fees, as well as settlement documents and attorney charges.
How Much Home Can You Afford?Attorneys from Riverside Abstract advice, in order to determine what price range you should afford, contact your loan officer.
When calculating the amount of the loan their customers can qualify for, lenders use certain ratios. These ratios vary by lender and loan program. As a maximum allowed for the mortgage payment, most of them use 28% of the gross monthly income (principal/interest/taxes/ insurance or PITI). For the total monthly debt, the ratio is 36%.
According to Riverside Abstract qualified professionals (for more info, follow Riverside on Facebook), the total monthly expenses are the PITI plus the long-term debt (auto loans and revolving/credit card debt. The calculation of the ratio does not include any other expenses, such as groceries, utilities, clothing, tuition, etc.