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Nine Must-Know
Terms for Renters and Homeowners
By Susan Jester, First Federal Retail Community Lender
Guest Column
Do you find yourself re-reading the fine print of your
housing agreement only to still be scratching your head?
Whether you’re preparing to rent or buy, knowing a thing or
two about the terms below can ensure you making the right
decision before you commit to a new homestead.
Terms for homebuyers:
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 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:
These are 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. Borrowers
will review the cost twice. The first time costs are shown
is early in the mortgage process on a Loan Estimate, and
then again three days before closing on a Closing
Disclosure.
Escrow:
Escrow accounts are usually required by lenders to cover
property taxes, mortgage insurance and homeowners insurance.
After an initial deposit, borrowers pay into the escrow
monthly as part of their mortgage payment. The escrow
account provides an easy way to make sure that taxes and
insurance are always paid.
Private Mortgage Insurance (PMI):
PMI is an insurance policy that protects the lender in case
of a default on the loan payments by requiring the borrower
to pay premiums. Most lenders require (PMI) for loans with
loan-to-value (LTV) percentages in excess of 80% (In other
words, the buyer puts down less than 20% of the home's value
upon purchase). PMI is not required when a borrower has
more than 20% down, and is generally able to be cancelled at
specific points during the loan.
Points:
A point is a fee equal to 1 percent of the
loan amount. Borrowers can pay a lender points to
reduce the interest rate on the loan, resulting in a lower
monthly payment. Depending on the borrower, each point
lowers your interest rate by one-eighth to one one-quarter
of a percent.
Terms for Renters:
Lease:
A legal document detailing the terms under which the lessee
(the renter) agrees to rent property from the lessor (the
property owner). A lease guarantees use of an asset and
guarantees regular payments from the lessee for a specified
number of months or years.
Notice to vacate:
Notification from the landlord to the tenant ordering the
tenant of vacate the property. In most cases, the
notification is given because the tenant either broke one of
the terms of the lease or is not following through with
payment of rent. The tenant is typically given 30 days to
vacate the premises. Similarly, a notice to intend to
vacate may be required under the lease for the tenant to
notify the landlord before vacating the property.
Rental application:
Filled out by a prospective tenant, which typically
authorizes the landlord to conduct a credit check to
determine the suitably of the individual. Often, there can
be a non-refundable fee associated with the rental
application.
Security deposit:
Funds, in addition to rent, that a landlord requires a
tenant to pay to be kept separately in a fund for use should
the tenant cause damage to the premises or otherwise violate
terms of the lease.
Still have questions? Meet with a lending professional at
First Federal Bank. Find you nearest location at First-Fed.com.
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