Annual Percentage Rate
A mortgage APR--Annual Percentage Rate--takes into consideration fees or costs associated with a loan that are shown to you on the Loan Estimate produced by Sierra Pacific Mortgage during the application process and expresses them to you as the cost of credit in relation to the amount borrowed.
The “amortization” of the loan is a schedule on how the loan is planned to be repaid. For example, a typical amortization schedule for a 30-year loan will include the amount borrowed, interest rate paid and length of the loan. The result will be a monthly breakdown of how much interest you will pay and how much will be paid on the amount borrowed, also known as the principal. This makes things much easier in order to visualize your future payments.
An “appraisal” is conducted by a professional appraiser who will look at a property and determine an estimated value based on its physical inspection and a comparable house report that shows similar homes that have recently been sold.
“Closing costs” are costs that the buyer must pay during the mortgage process. Closing costs differ from lender to lender, but can involve fees ranging from attorney fees, recording fees and other costs associated with the mortgage closing.
We look at a variety of ratios and financial data to determine if borrowers are able to repay a loan. One of these ratios is known as the “debt-to-income” ratio. In this instance, Sierra Pacific Mortgage compares the borrower’s monthly payments with the new mortgage, and compares it to the borrower’s monthly income. The result is displayed as a percentage which we use to determine risk. Generally, the lower the percentage, the better.
The “down payment” is the amount of the home’s purchase price that the buyer is willing to pay upfront. Generally, the higher your down payment, the more you will save in the long term as you are financing less of the purchase price. There also a variety of down payment assistance programs that you may qualify for, so please contact me and we can talk about what will work best for your specific situation.
The difference between the value of the home and the amount left to pay on the mortgage loan is called, “equity.” Over time, as the value of the home increases and the amount of the loan decreases, the equity of the home generally increases.
Escrow payment is a common term referring to the portion of a mortgage payment that is designated to pay for real property taxes and hazard insurance. It is an amount "over and above" the principal and interest portion of a mortgage payment collected on a monthly basis.
Fixed Rate Mortgage
This is a mortgage loan where the interest rate and the length of time of the loan is set to be unchanged for the entire life of the loan. The term (length of time) of fixed rate mortgages typically range from 15 to 30 years.
The Loan Estimate is a new form that went into effect in 2015. The form provides you with important information, including the estimated interest rate, monthly payment, and total closing costs for the loan.
Before closing on a home, new homeowners must secure property insurance on the home. In order to protect both the homeowner and Sierra Pacific Mortgage, this must be in place prior to the loan going into effect.
Another typical financial ratio that is done is called the Loan-to-Value (LTV) ratio. This calculation is determined by dividing the amount of the mortgage by the value of the home. If your LTV ratio is greater than 80%, you may be required to pay addition costs, such as mortgage insurance.
“Points” refer to percentage points of the loan amount. In order to get a lower interest rate, we will allow borrowers to "buy down" the rate by paying discount points. Paying a percentage point up front in order to get a lower rate will eventually save money in the long run if you are planning to stay in the house for the duration of the loan.
“Principal” is the term used to describe the amount of money that is borrowed for the mortgage. The principal amount that is owed will go down when borrowers make regular payments.
Private Mortgage Insurance
When the Loan-to-Value (LTV) ratio is higher than 80%, we will generally require borrowers to purchase private mortgage insurance (PMI). This guarantees that until the borrower reaches an 80% LTV, they are covered from default. To get this protection, borrowers pay a monthly PMI premium, like many other types of insurance.