Buying your first home can be thrilling—but also overwhelming. The mortgage process comes with its own unique language, filled with terms that might seem intimidating at first. But don’t worry, we’re here to simplify things. Here are five essential mortgage terms every homebuyer should understand:

1- Pre-Approval

Think of a mortgage pre-approval as your ticket into the home-buying game. It’s a lender’s conditional commitment to lend you a certain amount of money. Getting pre-approved not only clarifies your budget but also makes your offer more attractive to sellers.

2. Interest Rate

Your interest rate is essentially the cost of borrowing money, expressed as a percentage. Even small differences in your interest rate can significantly affect your monthly payments and total loan cost. It’s crucial to shop around and get the best rate possible.

3. Loan-to-Value Ratio (LTV)

The LTV ratio compares the amount of your mortgage loan to the appraised value of your home. For instance, if you borrow $180,000 to buy a $200,000 home, your LTV ratio is 90%. A lower LTV can often help you secure better loan terms.

4. Closing Costs

Closing costs are fees and expenses you pay at the closing of your real estate transaction. They typically include appraisal fees, loan origination fees, title insurance, and more. On average, closing costs range from 2% to 5% of your home’s purchase price.

5. Private Mortgage Insurance (PMI)

PMI protects lenders if you stop making payments. Usually required if your down payment is less than 20% of your home’s price, PMI adds to your monthly mortgage costs. The good news? It usually goes away once you’ve built sufficient equity in your home.

Ready to simplify your home-buying experience?

At Hill Country Mortgages, we’re dedicated to making the mortgage process understandable and stress-free. Reach out today, and let’s discuss how we can help you confidently buy your dream home!