Buying your first home can feel like you’re back at school, learning a new subject or language
So, let’s make it easier.
Here are 6 terms you need to know before starting your successful home buying journey.
Debt-to-Income (DTI) Ratio: That’s the percentage of the debts and new mortgage payment, compared to your gross income. Lenders use this to determine their risk when lending you the money for your home.
Prequalified: This is the process a lender uses to make a preliminary assessment on how much you can afford to spend on a house. This is usually based on your credit and any other information you’ve provided to them.
Preapproved: Your loan will be assessed with the same scrutinization, as if you are under contract. Because this is ultimately based on what can be documented, a preapproval is stronger than being prequalified. It’s important not to put your money on the line, without a preapproval.
If those last two terms seem similar, here’s another way to look at it. Prequalified is more preliminary and preapproved means we’re looking at additional information. It’s like comparing dating and being engaged - you’re looking at different levels of commitment.
Under Contract or In Escrow: This means that you have an agreement to buy a home.
PMI (Private Mortgage Insurance): As a buyer, you might be required to buy this type of insurance as a condition for your loan. This is especially common if you put less than 20% down on some loan programs, while other loan programs have it regardless.
Escrow Account: This is a reserve account attached to your mortgage that you pay into monthly for your annual taxes and homeowners insurance.
Once you understand these terms, you’re well on your way to being a savvy homebuyer.
If you’re ready to learn more about your personal mortgage journey, based on your unique situation and preferences, you can send me an email here: (firstname.lastname@example.org)