Understanding New Home Loan Terms in Michigan

By Allison E. Beatty
Local Lender Columnist
Jul 10, 2006
There are many terms to understand as you shop for a new home loan in Michigan. Before talking with lenders, spend some time understanding all the terminology. You'll then be able to make informed decisions about which Michigan mortgage fits your needs.

Common Mortgage Terms

Here's a list of some common mortgage terms. Ask your Michigan lender to explain how they apply to your new home loan.

• Adjustable Rate Mortgage - A mortgage loan that has an interest rate that adjusts periodically based on a predetermined index. "ARMS" are typically for a period of 1, 3, 5 or 7 years.
• Amortization Term - This is the length of the loan term, often 360 months, which is 30 years.
• Balloon Mortgage - This is a Michigan loan that has a final payment, called a balloon payment, at the end of the mortgage term.
• Buy Down - This term refers to when you, the lender or home builder, pays down the interest rate for a set period to lower the payments. This sometimes is done as a sales incentive by a Michigan home builder or lender.
• Closing - This would be the time when all the funds transfer between the buyer, seller and lender.
• Closing Costs - These are the costs charged by the lender (and other entities) to process all the financial documents and "close" the loans. Common closing costs include:
• Appraisal fee
• Deed recording fee
• Discount points
• Insurance
• Origination fee
• Title search


• Credit Score - This is a number that is determined from evaluating your credit and employment history. The number gives lenders an indication of how well you handle credit. It also plays a big role in determining your ability to get a mortgage and setting the rate.
• Debt-to-Income Ratio - This is the ratio of your monthly payment obligations divided by your gross monthly income. See housing expenses-to-income ratio. You typically want your debt to be lower than 35 percent of your income.
• Escrow - This is an account set up by the lender for paying tax or insurance payments while purchasing a home.
• Lock in period - This is the lender's guarantee that the mortgage rate quoted will be good for a specific number of days from the day of application.
• Origination Fee - This is the lender's fee for preparing new home loan documents and other services in setting up the loan.

Sources:
Home Loan Learning Center

About the Author
Allison E. Beatty is a syndicated real estate writer who has been writing columns for 15 years.