Conventional Mortgage Loans

Any prospective home buyer looking at conventional mortgage loans will want to do a little bit of research before beginning to send your credit report on its rounds through the finance companies. Buying a home has its own little niche in the financial market and mortgage loans have their own jargon and terms that will confuse a first time home buyer that is not familiar with them. We’ll go over some common home buying terms so that you can know what your broker or agent means when she begins speaking the language of the home loan.

Taking out conventional mortgage loans is a lengthy process and one of the terms that you will hear a lot is closing costs. Closing costs are any costs associated with paying for the mortgage on your home, which may include broker’s fees, attorney fees, any fees associated with filing documents or getting them notarized, as well as any inspection fees and costs to appraise the home. They may include recurring fees such as property taxes as well. Most closing costs are paid by the seller, but some the buyer will have to pay and each transaction differs.

Another term related to mortgages that you may not understand is the term equity. Equity is simply the part of the home that you own. After you pay on your home for a certain period of time, and the interest has been paid and you are paying off the principal, you will begin accruing equity. If you pay on your home for ten years you may have quite a bit of equity built up in your home, or to put it another way, you may own half of your $200,000 home, while the bank owns the other half still, and you may be able to get a loan on this equity. Equity also occurs when your home’s value goes up from the originally assessed value.

Two more terms that you may have heard in regards to regular mortgage loans are appreciation and depreciation. These two terms are opposites, appreciation meaning your home going up in value and depreciation meaning that the value of your home goes down over time. Many things affect a home’s appreciation or depreciation so ask your lender or broker to explain to you what the appreciation or depreciation values are on any homes that you are considering buying. Then you can make the best decision.

The final term that we’re going to talk about is escrow. This may be a confusing term to many because it can mean many different things. When it comes to buying a home, escrow is usually the down payment, deposited somewhere for safekeeping while the deal is closed, and then delivered to the seller after all the paperwork is signed. There are many other terms associated with buying a home and we have only covered a few so ask your agent to explain these terms to you. First time home buyers aren’t usually knowledgeable about these terms and he or she may explain them to you anyway.