Mortgage Lingo Made Easy
Buying a home can feel overwhelming, especially when you add in the loan lingo used by lenders and real estate agents, according to Alex Parker, sales manager at Home Team Mortgage – Ebby Halliday Realtors’ affiliated mortgage source (he’s a smart guy!). To help alleviate some of the confusion, below are some common terms frequently used in the mortgage process:
FHA is a type of mortgage that offers lower down payments, allows for lower credit scores and less income to qualify. These mortgages are government backed by the Federal Housing Administration, hence the FHA acronym!
VA mortgages are loans that can only be used by qualified veterans, active-duty military personnel and reservists. These loans require no down payment and are guaranteed by the Department of Veteran Affairs. They are a great benefit to our brave military population!
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 property tax or homeowner’s insurance changes. Most mortgages in our market place are fixed rate mortgages, meaning that regardless of whether they are FHA, VA or conventional, they have a fixed rate.
Adjustable Rate Mortgage (ARM)
This is a mortgage loan for which the interest rate may change annually, often after a set number of years (for example, 5 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 very 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.
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 pre-approval 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 pre-approval is more FORMAL and is much more powerful in negotiating as it provides peace of mind for buyers, sellers and agents.
To learn more about the mortgage process and to determine how much you qualify to borrow for a home purchase, contact me and I’ll get you some great mortgage contacts who can help set you on the right path to homeownership or to a new home!