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Mortgages can be complicated, with industry terms that not everyone understands. The following is a list of commonly used terms, phrases, and questions that you might encounter throughout the mortgage process.

What are points?

You may here people talking about “paying points” in order to get a better interest rate. What this is referring to is an additional fee that can be collected and paid to the bank up front, for the purpose of getting a lower mortgage interest rate. The word “point” is in reference to how the fee is calculated- it is generally one percentage point of the loan amount, or a portion of a percentage point.

What are closing costs?

Closing costs vary depending on many factors. They can be paid outright at closing; they can be financed into the loan balance in a refinance, or credited to the buyer from the seller’s proceeds at closing. In my experience, since every mortgage has certain fixed costs: Processing, underwriting, appraisal, and title fees. These fixed costs, since they rarely change usually add up to about $2750.00. If you are paying a loan origination fee of one percentage point (which is fairly standard), you should add 1% of your loan balance to this figure. Example- If you are borrowing $200,000.00. You can estimate the closing costs to be about $2,750.00 + $2,000.00, or a total of $4,750.00. Closing costs in a refinance are actually slightly higher due to the title insurance. The fixed costs in a refinance should be more like $3,250.00.

How are closing costs financed?

Closing costs are unavoidable, but there are a few ways to structure a deal where the closing costs and pre-paid items can be financed into your loan. You can finance fees into your mortgage rate, pay for them out of the proceeds of your new mortgage (in a refinance), OR have the seller give you a cash credit to apply to these fees at closing.

What are pre-paid items?

Prepaid items are additional costs associated with real estate ownership, but are NOT the costs connected to the transaction, therefore are NOT closing costs. These are things like: property taxes, homeowners insurance, and pre-paid mortgage interest (which is a pro-rated monthly payment based on what day of the month you close). Probably the most significant prepaid item is the property taxes. In Oregon, we collect taxes one time per year and they are paid in advance. Therefore when you purchase a property, the county collects the entire lump at closing. Hence: “pre-paid”.

The 6 Steps of Getting a Mortgage

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Featured Posts from James Adair's Mortgage Blog

Our new credit environment is fast becoming one of extremely rigid guidelines.  Your ability to obtain a mortgage is dependent on the financial scenario presented in the loan application.  Think of this application as a snapshot of your existing circumstance.  If there are any material changes to this picture, it can mean the difference between having a loan approved, and having it declined.


***SPOILER ALERT***  I'm not an economist, or statistician.  I'm a Portland area mortgage lender, and Portland area home owner, as well as a Portland area landlord.  So I feel I'm writing this as an interested bystander with a ring side view of the action.  My team and I participate in anywhere from 5-15 purchase transactions per month as of late, so I certainly have some high level anecdotal information to bring to bear here.

A realtor colleague of mine was recently relating his shock to me about how often he is talking to renters who aren't considering buying real estate because they are under the impression that a purchase requires a 20% down payment.  This idea couldn't be further from the truth, and this message is sadly often relayed on TV from uninformed talking heads and people who are obviously not real estate professionals.  I'm here to tell you the truth, dear blog reader!  Isn't that why you read blogs?!