Understanding mortgage terminology is an important part of first time buyer mortgage advice because you need to know as much as you can about the home-buying process. First time buyers are understandably “green” and know little about what a mortgage entails. Breaking down the confusing terminology will help you make the best decisions for your needs when buying a home and taking out a mortgage.
One of the first pieces of the terminology you’ll likely come across is: AIP or Agreement in Priniciple. This is also sometimes referred to as a Mortgage in Principle. An AIP is a document that is given to you by your bank and tells you how much you “home” you can purchase. This is helpful because when you’re looking at properties, you can share the document with the real estate agent or whoever is selling the home, and demonstrate that you can in fact purchase the home.
Another important piece of terminology is Equity. Equity is the value between how much you owe on your mortgage and how much your home is currently worth. Your home’s equity can be used to remodel your home, eliminate high-interest debt, or be used for other miscellaneous loans. The more equity you have in your home, the easier it will be to buy a new home in the future as well.
When applying for mortgages, you might come across the term Joint Applicant. This term denotes an equal share between two people or multiple people. If you apply for a joint mortgage, this joint purchase will supersede all wills. So, if someone passes away, the home will go entirely to the other joint applicant or applicants. Another term that will come up when applying for your mortgage is Valuation. Valuation is what mortgage lenders use to determine if the home is worth what you want to pay for it. In other words, if the home and property are listed at a high rate and the actual value of the home and land is not worth that rate, the lender may decline to provide you with that high mortgage number. In this case, you may have to bring in a significant down payment in order to finance the home.
There are some unusual terms in the world of mortgages too. The term “gazumping” might be fun to say, for example, but it’s unfortunate for potential buyers. If a homeowner accepts an oral offer but then chooses to go with another buyer’s higher offer, it’s called gazumping. In this case, the oral offer is voided. Another unusual term “leasehold” means that you can purchase the home but not the land. Instead of purchasing the land, you are leasing it. This means that you will have to negotiate the terms of the land lease when the lease ends. If the home you want has a leasehold that has fewer than 70-80 years left on it, you might struggle to get a mortgage.
There are many more mortgage terms that you are likely to encounter as you move through the home-buying process. Working with a qualified mortgage broker and real estate agent will help you navigate the process with ease. Make sure that you choose people who help breakdown the mortgage jargon for you and will support you on your home buying journey as a first time buyer.