Homeownership Guidance, Advice and Blogs

As the Director of Affiliate Relations at HomeFree-USA, I’ve always been fascinated with how people handle their money. Like everyone else, I’ve had my financial ups and downs. In fact, it took me 32 months to pay off $32,000 in credit card bills and build up a six-month emergency fund. While that was a very difficult period, I am grateful – and wiser -- for the experience.

Through my personal experiences and working at HomeFree-USA, I’ve gained a ton of insight that I feel compelled to share. You’ll find those lessons here. Feel free to take the thoughts and ideas that resonate with you most and put aside the rest for later. I look forward to sharing my journey.

8 homeownership terms everyone ought to know

Regardless of where you are in the home buying process, there are certain terms that you must know. Below are 8 of the most important

FICO Score - the number, ranging from 300 to 850, that lenders use to determine your credit worthiness. The higher the score the more likely you are to receive a better interest rate.

Net worth - the difference between your assets and liabilities. To calculate, add the value of everything you own that could be cashed in or sold (i.e. home, car, checking, savings, retirement and other account balances), then subtract any outstanding debts (i.e. auto or mortgage debts, outstanding balances on credit cards and student loans)

PITI - short for Principle, Interest, Taxes and Insurance, this makes up your total monthly mortgage payment. Unless you have an adjustable rate mortgage, the Principle and Interest should remain the same, but the Taxes and Insurance can change one or more times per year. Although PITI is commonly paid together, some choose to pay taxes and insurance separate from the principal and interest payment.

Amortization - the process of paying off your debts in regular installments over a set period of time. When you get a mortgage, the lender will provide an amortization form showing how your payments are being applied towards the principal and interest over the life of the loan.

ARM - aka Adjustable Rate Mortgage, the interest rate you pay monthly is tied to a specific benchmark. Ex. instead of an interest rate staying the same throughout the life of the loan, each year it will increase or decrease based on current market interest rates.

Fixed rate mortgages - a set interest rate established at the beginning of the mortgage loan. The good thing is that changes in the financial markets won’t impact your monthly payment, it stays fixed. On the down side, if interest rates take a steep drop (as they’ve often done) you’re still locked in to a higher rate.

Adjusted Gross Income (AGI) - the amount you earn from your job, pension or interest on investments, minus certain IRS allowable deductions. It is used to determine your taxable income.

Escrow - this amount is held by a third party while the terms of an agreement are being worked through. A homebuyer may deposit a certain amount into the account that the seller cannot access until the property passes inspection, for example. Escrow is also used to hold the taxes and insurance amount that comes in with the mortgage payment - when each payment is due, the mortgage company deducts the amount due from escrow and pays it on the homeowner’s behalf.

The number of financial terms and acronyms are exhaustive, and as you continue to increase your net worth, the need and application for all will be revealed.

And so it is.