Important Mortgage Terms You Should Know (Part 5 of 5)

As Your Mortgage Experts we feel it's important for our clients to familiarize themselves with terminology that is used throughout the loan process. Reading over your loan documents or speaking to someone who works in the mortgage industry might make you feel like you're in a foreign country, but getting to know these terms will help you feel more comfortable.

Private Mortgage Insurance (PMI)
In the event that you do not have a 20% down payment, the lender may allow a smaller down payment, sometimes as low as 3.5% or less with loans guaranteed through the VA or USDA. However, with a smaller down payment, borrowers are usually required to carry private mortgage insurance on the loan. Private mortgage insurance comes in several forms: upfront, paid at closing, and monthly. A lender may require some combination of both upfront and monthly mortgage insurance. The amount required is determined based on program type, property type, credit score and loan-to-value.

Title Insurance
Title insurance protects a real estate owner or lender against any loss or damage they might experience because of liens, encumbrances, or defects in the title to the property, or the incorrectness of the related search. It protects against claims from various defects such as another person claiming an ownership interest, improperly recorded documents, fraud, forgery, liens, encroachments, easements and other items that are specified in the actual policy.

Approves (or declines) funding to potential home buyers, based upon factors such as credit, employment, assets, etc., and matches approved risks with appropriate rates, terms and loan amounts.

USDA Rural Home Loan
Along with loans guaranteed by the VA (see VA Loan below), loans guaranteed by the USDA remain one of the few nationally offered loan programs available with no down payment. While the program includes the word "rural" in its name, this is not necessarily the case with all properties.

The program's requirements mandate that both the property and borrower must qualify. These requirements are dependent on the physical location of the property and the maximum household income. Ask your lender for details so you can determine if this type of program would be a good option for your situation.

VA Loan
Mortgage loans available to eligible US veterans. VA guaranteed loans are made by private lenders, such as banks or mortgage companies, for the purchase of a home for a buyer's own personal occupancy. These loans offer competitive rates and require little or no down payment.

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