When you're looking to buy a property, there are many aspects of real estate that you need to be well versed about. From formalities to the intricacies, the simple act of buying property is a tricky business involving a lot of situations that may not always be favorable to you.
Here, we discuss five important yet not so popular terms that you should know when you are thinking about investing in a property or purchasing it.
1. Annual Percentage Rate (APR)
A value that is created based on a formula set by the government, the annual percentage rate is aimed at reflecting the true cost of borrowing at the end of the year. Expressed in terms of percentage, the rate is calculated by deducting closing costs from the loan amount and computing the interest rate on the deducted amount using the actual loan payment. The resulting number is termed as the APR, and will always be higher than the actual note rate of your loan.
2. Biweekly Mortgage
Biweekly mortgage requires you to make payments every two weeks. The benefit of this is that the principal as well as the time taken to pay off a 30-year mortgage is reduced substantially by the extra payment.
If you want to set up payment schedules for biweekly payments, independent companies can offer you that option on your 20-year mortgage. Fees are charged for set-up as well as transfer of every payment, and the funds that you send across are deposited in a trust account. From here, your monthly payment is made such that all excess funds stay in the account until the next payment. This will not only save money, but time too.
3. Escrow Account
When your purchase transaction has been closed, an escrow account, also known as an impound account, must be opened with your lender. An escrow account would require that you pay an amount every month that goes above what your principal and interest are. Your impound account holds the extra money to be able to pay for homeowner's insurance, property taxes and other expenditure as and when they become due. These are paid by your lender using your money, as an alternative to you paying them yourself.
4. No-Cost Loan
A no-cost loan is just that - a loan offered by a lender at no cost at all. There could be two meanings to it though; it could either mean that there will be no lender costs associated with the loan or that it will incorporate all other costs involved in a refinance transaction like escrow fees, title insurance, notary fees, settlement fees, recording fees, and appraisal among others.
Since these fees are linked to the dynamics of purchasing a home or borrowing a loan, the lender does not charge them directly. The drawback of this approach is that the interest rate will be higher than a loan that covers all costs.
5. Planned Unit Development (PUD)
A planned unit development involves the kind of ownership with a building or unit owned by individuals who live in it, but common areas are owned by joint developers or members of the association.
Read more about real estate at
www.ExperienceAlbuquerque.com
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