Here are the basic mortgage terms you will need to understand in order to carry a conversation with your lender when applying for a new mortgage and buying a home. Understanding Mortgage Terms | Buying A House | Mortgage Basics | 2019
Understanding Basic Mortgage Terms | Mortgage Basics | Mortgages 101 | 2019
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Summary:
What is a mortgage?
Type of loan that is secured by real estate (i.e., the home you purchase). Unless you are paying cash for the home, you'll need a mortgage.
What's Included in my monthly payment?
our mortgage payment typically includes PITI:
Principal – What you borrowed.
Interest – What the lender charges you to borrow the money used to purchase or refinance the home;
Taxes – What you pay in property taxes to your local city/municipality and sometimes county; and
Insurance – What you pay to insure your home from damages (fire, natural disasters, etc.).
What is an escrow account?
Taxes and insurance are usually held in an escrow account and paid by the mortgage company when they are due (a portion of your monthly payment goes to fund the escrow account).
Types of mortgage loans:
Fixed-rate mortgage – Interest rate remains the same for the life of the loan providing you with a stable and predictable monthly payment.
Adjustable-rate mortgage – Interest rate is flexible and subject to adjustments—either on specific dates (3-, 5-, 7-year adjustments) or based on market conditions.
Government guaranteed mortgages – Both the Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) offer loans to help homeowners with income restrictions or those who are currently in the military or a veteran respectively. Typically these loans have lower down payment requirements and less restrictive qualifying guidelines, but they do require you to meet certain criteria. Always check with the FHA or VA for complete details and if you think you may qualify for this type of loan, inform your lender.
Pre-qualification VS Pre-Approval
This involves providing your lender with some basic information—what income you make, what you owe, what assets you have, etc. They'll look at your overall financial situation and be able to provide you with a preliminary estimate of what loan terms for which you may qualify.
When you get pre-qualified, the lender doesn't review your credit report or make any determination if you can qualify for a mortgage—they'll just provide the mortgage amount for which you may qualify. Pre-qualifying can help you have an idea of your financing amount (and the process is usually quick and free), but you won't know if you actually qualify for a mortgage until you get pre-approved.
Pre-approval is a bigger step but a better commitment from the lender. If you qualify for a mortgage, the lender will be able to provide: the amount of financing; potential interest rate (you might even be able to lock-in the rate); and you'll be able to see an estimate of your monthly payment (before taxes and insurance because you haven't found a property yet).
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Mortgage Basics | Understanding Mortgage Terms | Getting A Mortgage | 2019
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