We all know that buying a home can be overwhelming, especially when you add in the loan lingo and acronyms used by lenders and real estate agents. To help alleviate some of the confusion, below are some common terms (with explanation) frequently used in the mortgage process:
FHA is a type of mortgage that offers lower down payments, lower credit and less income to qualify. These mortgages are government backed by the Federal Housing Administration.
VA mortgages are loans catered to qualified veterans, active- duty military personnel and reservists. These loans require no down payment and are guaranteed by the Department of Veteran Affairs.
Conventional mortgages are loans offering a wide range of options for borrowers. Some features may include monthly or single premium mortgage insurance, second liens, and higher loan amounts.
Fixed Rate Mortgage
This is a mortgage loan for which the interest rate is fixed for the life of the loan. The principal and interest payment does not vary. As with every loan, the escrowed portion of the payment may fluctuate up or down depending on the tax or homeowner s insurance changes.
Adjustable Rate Mortgage (ARM)
This is a mortgage loan for which the interest rate may change annually, often after a set number of years. ARMs are tied to indexes which are used to determine changing rates to align with the current market. The principal and interest payment may vary up or down, along with the escrowed portion of the payment.
Annual Percentage Rate (APR)
The APR illustrates the annual cost of financing, including interest rate, fees and charges and is expressed as an annual interest rate. Because you may be paying loan discount points and other prepaid finance charges at closing, the APR disclosed is often higher than the interest rate on your loan. This APR can be compared to the APR on other loan programs to give you a consistent means of comparing rates and programs.
The appraisal is a professional opinion of the value of a property. The opinions are provided by certified and licensed appraisers who rely on market conditions and comparables to determine the value of the subject property.
A type of insurance provided to lenders for protection against borrower defaults on the loan. Loans with less than a 20% down payment require mortgage insurance. The mortgage insurance premium can sometimes be paid upfront but is most commonly paid monthly in the mortgage loan. Mortgage insurance is eliminated when the loan reaches a 78% loan to value.
A process by which a lender assesses whether a borrower qualifies for a mortgage based on information provided by the customer. Typically, a prequalification is an informal review as a preemptive to preapproval and full loan approval.
A process by which a lender verifies information including credit, income and asset information to assure the borrowers qualify for the mortgage. A preapproval is much more powerful in negotiating as it provides peace of mind for buyers, sellers and agents.
These are some of the most common terms of the many you ll hear when buying a home – hopefully this breakdown will make your mortgage process easier to understand . Home Team Mortgage is committed to explaining all of your options so you may have the utmost confidence in your most important financial decisions.
Contact one of our qualified loan officers for any questions or to assist you in your home buying experience.
Tom Parker is president of Home Team Mortgage, Ebby Halliday s in-house mortgage source, and a regular contributor to the Ebby Blog. Contact Tom at firstname.lastname@example.org or 972-665-1900.