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Terms to Know Before Buying

When you’re preparing to buy, the Bank of Sullivan encourages you to be familiar with the following housing terms before buying:

APR: 

Short for annual percentage rate, APR is how much your loan will cost over the course of a year. This figure is almost always higher than the interest rate, because it takes into account the interest charged as well as certain fees or additional costs associated with the loan. Since all lenders use the same formula, it can be a more effective way of comparing mortgages rather than just the interest rate. 

Closing Costs/Settlement Fees: 

The costs, in addition to the price of the property, that buyers and sellers are charged to complete a real estate transaction. Costs include loan origination fees, discount points, appraisal fees, title searches, title insurance, surveys, taxes, deed-recording fees and credit report charges. 

Escrow: 

Escrow accounts are usually required by lenders to cover property taxes and mortgage insurance. After an initial deposit, borrowers pay into the escrow monthly – usually as part of the mortgage payment. 

Loan Estimate (LE): 

An estimate of fees associated with a loan provided to the customer by a mortgage lender. A LE is required by law under the Real Estate Settlement Procedures Act (RESPA). The estimate must be provided within 3 business days of applying for a loan. 

Points: 

Borrowers can pay a lender points to reduce the interest rate on the loan, resulting in a lower monthly payment. The cost of one point is equal to 1 percent of the loan amount. 

Debt to Income (DTI):

Monthly debt payments divided by gross income. 

Loan to Value (LTV):

Loan amount divided by lower of purchase price or appraisal value.