• Rebecca Richardson - Mortgage Consultant

Mortgage glossary: a must for many buyers

Buying a home comes with its own unique lexicon. There are terms and acronyms that you just don’t really see in any other context. Things like escrow, closing costs, OTC loan and PITI all are part of the mortgage dictionary you should know as you start the homebuying process.


Know your escrow

You found your dream home and want to figure out if you can afford it. You looked at the asking price, plugged it into an online calculator using the latest advertised interest rates with the desired loan term and came up with a solid number for the mortgage. You’re in luck, it’s $1,950 which is below your $2,000 budget. At least you think it is. Look closely. That $1,950 is just for principal and interest for the mortgage. That doesn’t factor in your escrow.


Yep, a mortgage is actually more than the principal and interest you pay for the home. It also includes what is called escrow – the part of your payment that’s for property taxes and homeowner’s insurance. You can call it PITI for short.


Escrow payments are calculated by taking the total annual costs of those two things, divided by 12 and added to your monthly principal and interest.


The cool thing about these costs is that your mortgage company actually pays your taxes and insurance when they come due. Another quirk no one tells you about, though, when buying your first home – your mortgage payment could change if your property taxes and insurance changes.


OTC – ya, you know me

It’s got a nice ring to it but just what is OTC? Well, for those who want to buy a piece of land then build on it, they can use a loan termed as a one-time-close (OTC) loan. That is one way you can go from a vacant lot to your dream home.


But how does it work? Let’s look at the two elements of the deal – the lot and the home.


  • Start with preapproval and set a budget

  • Decide on the floor plan

  • Choose a builder

  • Get build costs

  • Find land and put under contract

  • Loan process begins with both the buyer and builder being underwritten

  • Loan approved and close on land

  • Construction can begin


It definitely is more complex and not for everybody. But if it’s something you’re considering let’s talk, I have done this and helped homeowners like you figure out their best options.


Closing costs vs. prepaids

This industry is full of confusing terms and concepts. But one that’s at the top of the list is closing costs vs. prepaid costs. They are both paid at the time of closing but are categorized differently for the sake of figuring out your monthly mortgage payment.


Prepaid costs – the money set aside to cover taxes and insurance

Closing costs – lender and title fees


Prepaid costs are the same regardless of the lender you choose, and title fees are determined by the title company. But they are paid at closing.


If these and a few other terms you’ve been reading about seem a little confusing, stick around, follow me and I’ll help you understand this home buying stuff and help get you into your dream home.

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