What is the principal on a loan?

The original amount you borrow from a lender. You might also accrue interest over time that you will need to pay on top of repaying the original loan amount.

Example: You purchase a $300,000 home. To buy the home, you pay $50,000 upfront and obtain a loan for $250,000. Your principal is the $250,000.

What is a down payment?

A down payment is any money you pay upfront when purchasing a home. 

Example: You purchase a $300,000 home. To buy the home, you pay $50,000 upfront and obtain a loan for $250,000. Your down payment is the $50,000.

APR vs Interest Rate

The interest rate is the cost to borrow money. Annual Percentage Rate (APR) is the yearly cost of borrowing, plus any additional fees associated with getting a home loan. When comparing loans, it is best to use the APR.

What is a funding fee for the VA Loan?

The funding fee is a one-time payment made to the Department of Veteran Affairs to support the VA loan program. The funding fee can be paid either as an upfront cost at closing or it can be rolled into your loan.

You can reduce your funding fee by putting more money down when purchasing your home.

What are closing costs?

Closing costs is an umbrella term used to describe a wide range of fees you can expect during the closing process. 

Examples of closing costs include, loan origination fee, VA funding fee, VA appraisal, real estate taxes, etc.

Fees will vary based on the home you choose and details of your loan, but you can expect closing costs to be between 1-3% of the sales price of the home. 

What is Private Mortgage Insurance (PMI)?

PMI is a type of mortgage insurance that is required for a conventional loan. It is usually a monthly payment. The VA home loan does not require PMI, often making monthly payments lower when comparing to conventional. However, this savings is offset by the VA funding fee which is required from the borrower upfront.

What is homeowner’s insurance?

Home insurance provides coverage for loss or damage to a property and the policy holder’s assets. It is not required by law, but most lenders will require home insurance if you are obtaining a mortgage through them.