Purchasing a home in Philadelphia can feel overwhelming and complicated when you get into all of the necessary details of the transaction. The process of taking out a mortgage loan alone can quickly become overwhelming.
There are many legalities and terms within mortgage loan paperwork that can become confusing to anyone who does not work in the mortgage industry and uses these terms regularly. Most Americans do not have basic mortgage knowledge, and it can unfortunately lead to some mistakes and confusion when purchasing a home. If you are getting ready to purchase a Philadelphia home and plan to utilize a mortgage loan, these mortgage aspects are good to know.
Down Payment and the Typical Down Payment Requirement
A large number of potential homebuyers do know what a down payment is but some are unprepared for the down payment requirement. The down payment is the money that a homeowner pays from their personal funds into the home purchase. It is like a deposit on the home. It helps to tell a lender you are serious about being responsible with the property purchase and repaying the money lent.
The standard traditional recommended amount for a down payment is 20% of the home purchase price. Some programs will allow for a lesser down payment, but it is good to know that this will require a homebuyer to carry private mortgage insurance until they have paid off 20%of the home purchase price through loan payments.
Difference Between a Fixed Rate and an Adjustable Rate
When it comes to taking out a mortgage loan, there are two different types of interest rates offered. This does not mean an interest rate amount. It refers to the type of interest rate. This is a fixed rate or an adjustable rate.
Fixed Rate: This means the mortgage rate will not change from the time it is locked at the beginning of your mortgage
Adjustable Rate: This means the interest rate is subject to change with re-evaluation after a specified period written in the loan agreement.
Difference Between Interest Rate and APR
The interest rate is applied to the principal of the loan (purchase amount of the home minus down payment). The APR is the annual percentage rate that is applied to all costs of the loan including fees. The interest rate is a portion of the APR.
PMI
PMI is private mortgage insurance. This is extra insurance coverage that a homeowner is required to pay for when they make a down payment of less than 20% on a home. It is extra protection for the lender.
How Mortgage Terms Affect Monthly Payments
The mortgage term is the lifetime of the loan. Most mortgages are offered at a 30-year term. The shorter the mortgage term the higher the payment becomes. You will make higher payments but also save thousands on interest.
An Escrow Account
An escrow account is a separate account held by the lender that sets aside money to pay property taxes and homeowners insurance. A portion of mortgage payments goes to this account.
Principal vs Interest
Principal the the amount of money you borrowed to buy the home, The interest is the extra money you pay the bank- their profit. This is how banks stay in business. The more you pay on the principal the more your interest payment goes down because it is a percentage of what you owe on the principal.
Amortization Schedule
This is a table that shows each payment you make on the mortgage. It shows the exact breakdown of how much of the payment is paid into the principal and how much pays interest.
Rate Lock
A rate lock is an agreement with the lender to lock the mortgage rate at what is offered right then. This locks the rate for a set period before you sign the final mortgage papers, most often when you are going through due diligence for purchasing a home. This allows you to keep the rate offered today and not be subject to where rates may change soon.
There is a lot to know about a mortgage and about purchasing a home in Philadelphia. If you are ready to purchase a Philadelphia home, the team at Victory Real Estate is here to help. We have several amazing Philadelphia real estate agents who are experts in finding clients their ideal homes. Agents like Kathleen Parker
“Kathleen Akamine was born in Japan, and raised in Peru. This unique upbringing gave her the opportunity to be exposed to multiple cultures and learn to speak fluently in English, Spanish, Japanese, as well as Portuguese. She has been living in the U.S. for 7+ years and along the way she gained a huge interest in the real estate industry. She has been with the Victory team for over 2 years now, and has gained expertise in customer relations and operations, while assisting in the management of multiple properties in the Philadelphia area. She has a true passion for helping people find the perfect home and find joy in making sure they have the most optimal experience. Currently she is pursuing education to get her license in real estate, and she is eager to continue and expand her knowledge and grow her career. ”
Contact us any time with any Philadelphia real estate needs.