Mortgage FAQs and Glossary

๐—ช๐—ต๐—ฎ๐˜ ๐—ถ๐˜€ ๐—ฎ ๐—บ๐—ผ๐—ฟ๐˜๐—ด๐—ฎ๐—ด๐—ฒ?ย ๐Ÿคทโ€โ™€๏ธ
A mortgage is an agreement between a bank and a borrower to lend money to buy property, in this case a home. You make monthly payments on the mortgage at a relatively low level.

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Owning a home with a mortgage works for many Americans. This is true because the value of properties typically remains relatively stable. So the lender has security in the form of taking back the property if you cannot pay off the mortgage. You get to use the property as long as the mortgage is in effect.

Making monthly payments over the long term of a mortgage makes it affordable.

๐Ÿกย ๐— ๐—ผ๐—ฟ๐˜๐—ด๐—ฎ๐—ด๐—ฒ ๐—ฑ๐—ฒ๐˜๐—ฎ๐—ถ๐—น๐˜€ ๐˜๐—ผ ๐˜‚๐—ป๐—ฑ๐—ฒ๐—ฟ๐˜€๐˜๐—ฎ๐—ป๐—ฑ:

Conventional vs. Federally Guaranteed Loans (FHA, VA and USDA)
Some people cannot qualify for a conventional mortgage. They may be able to qualify for one of the Guaranteed Loans. A mortgage professional can help with the details and find the right loan for you.

๐Ÿ“‰ย ๐—ช๐—ฎ๐˜†๐˜€ ๐—ถ๐—ป๐˜๐—ฒ๐—ฟ๐—ฒ๐˜€๐˜ ๐—ฟ๐—ฎ๐˜๐—ฒ๐˜€ ๐—ฎ๐—ฟ๐—ฒ ๐—ฑ๐—ฒ๐˜€๐—ฐ๐—ฟ๐—ถ๐—ฏ๐—ฒ๐—ฑ:

๐Ÿ’ตย Interest Rate
The interest rate is the cost you pay every month on the unpaid balance of your mortgage

% Annual Percentage Rate (APR)
APR is the interest rate plus other fees and expenses associated with borrowing the money to buy your home. The APR rate is a generally accepted way to accurately compare loans.

๐Ÿ“Šย Fixed rate vs adjustable rate mortgages
The interest rate on a fixed rate loan does not change for the life of the loan. This typically also means that your monthly payment will not change either. Many people appreciate locking in these important details for a long period of time.

Adjustable (or variable) rate loans are set up so that the interest rate and your monthly payment may change in prescribed ways over time. Sometimes the initial rate for an adjustable mortgage will be lower than a comparable fixed rate loan. You take a little risk that the rate will rise but you save some money in the short run.

๐Ÿšช๐Ÿกย ๐——๐—ถ๐—ณ๐—ณ๐—ฒ๐—ฟ๐—ฒ๐—ป๐—ฐ๐—ฒ ๐—ฏ๐—ฒ๐˜๐˜„๐—ฒ๐—ฒ๐—ป ๐—ฟ๐—ฒ๐—ป๐˜๐—ถ๐—ป๐—ด ๐—ฎ๐—ป๐—ฑ ๐—ฏ๐˜‚๐˜†๐—ถ๐—ป๐—ด:

Many people start out as renters. Renting is less of a financial commitment and provides much more flexibility. If you need flexibility then renting may be for you.

๐Ÿšชย Renting provides flexibility in:

โ–ชย location, where you are living
โ–ชย size of your space
โ–ชย financial commitment

๐Ÿกย Home ownership can provide some significant added benefits over renting:

โ–ชย There is the opportunity to build equity in you home as you pay down the mortgage over time
โ–ชย There may be tax benefits resulting from deducting mortgage interest
โ–ชย The property may increase in value over time
โ–ชย You have control over your property. This means you can enjoy the lifestyle you choose. You can also make physical improvements to your home

โœ…ย ๐—ช๐—ต๐˜† ๐˜€๐—ต๐—ผ๐˜‚๐—น๐—ฑ ๐—œ ๐—ด๐—ฒ๐˜ ๐—ฝ๐—ฟ๐—ฒ-๐—ฎ๐—ฝ๐—ฝ๐—ฟ๐—ผ๐˜ƒ๐—ฒ๐—ฑ ๐—ณ๐—ผ๐—ฟ ๐—ฎ ๐—บ๐—ผ๐—ฟ๐˜๐—ด๐—ฎ๐—ด๐—ฒ ๐—ฏ๐—ฒ๐—ณ๐—ผ๐—ฟ๐—ฒ ๐—ฏ๐˜‚๐˜†๐—ถ๐—ป๐—ด ๐—ฎ ๐—ต๐—ผ๐—บ๐—ฒ?
Getting pre-approved puts you in a much better position to buy the home of your dreams.

The old way of buying a home was to look for what you want and then come to an agreement with the seller. In that agreement you essentially say, โ€˜Yes, Iโ€™ll buy it as long as I can get a mortgageโ€™.

When you are pre-approved for a mortgage by your lender, you remove much of this uncertainty from the transaction. You still will have language in the agreement of sale to protect yourself. The big benefit is that the buyer has more confidence in you because you are pre-approved.

The seller will see you as a smart, stable buyer. As such you and your real estate agent will be in a stronger position to negotiate with the seller.


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Glossary

๐Ÿ“Šย ๐—”๐—ฑ๐—ท๐˜‚๐˜€๐˜๐—ฎ๐—ฏ๐—น๐—ฒ-๐—ฟ๐—ฎ๐˜๐—ฒ ๐—บ๐—ผ๐—ฟ๐˜๐—ด๐—ฎ๐—ด๐—ฒ (๐—”๐—ฅ๐— ) โ€” A mortgage that does not have a fixed interest rate. The rate changes during the life of the loan based on movements in an index rate, such as the rate for Treasury securities or the Cost of Funds Index. ARMs usually offer a lower initial interest rate than fixed-rate loans. The interest rate fluctuates over the life of the loan based on market conditions, but the loan agreement generally sets maximum and minimum rates. When interest rates increase, generally your loan payments increase; when interest rates decrease, your monthly payments may decrease.

% ๐—”๐—ป๐—ป๐˜‚๐—ฎ๐—น ๐—ฝ๐—ฒ๐—ฟ๐—ฐ๐—ฒ๐—ป๐˜๐—ฎ๐—ด๐—ฒ ๐—ฟ๐—ฎ๐˜๐—ฒ (๐—”๐—ฃ๐—ฅ) โ€” The cost of credit expressed as a yearly rate. For closed-end credit, such as car loans or mortgages, the APR includes the interest rate, points, broker fees, and certain other credit charges that the borrower is required to pay. An APR, or an equivalent rate, is not used in leasing agreements.

๐Ÿขย ๐—–๐—ผ๐—ป๐˜ƒ๐—ฒ๐—ป๐˜๐—ถ๐—ผ๐—ป๐—ฎ๐—น ๐—น๐—ผ๐—ฎ๐—ป๐˜€ โ€” Mortgage loans other than those insured or guaranteed by a government agency such as the FHA (Federal Housing Administration), the VA (Veterans Administration), or the Rural Development Services (formerly known as the Farmers Home Administration or FmHA).

โœ‰ย ๐—˜๐˜€๐—ฐ๐—ฟ๐—ผ๐˜„ โ€” The holding of money or documents by a neutral third party before closing on a property. It can also be an account held by the lender (or servicer) into which a homeowner pays money for taxes and insurance.

๐Ÿ”ย ๐—™๐—ถ๐˜…๐—ฒ๐—ฑ-๐—ฟ๐—ฎ๐˜๐—ฒ ๐—น๐—ผ๐—ฎ๐—ป๐˜€ โ€” Loans that generally have repayment terms of 15, 20, or 30 years. Both the interest rate and the monthly payments (for principal and interest) stay the same during the life of the loan.

โฐ๐Ÿ’ธย ๐—œ๐—ป๐˜๐—ฒ๐—ฟ๐—ฒ๐˜€๐˜ ๐—ฟ๐—ฎ๐˜๐—ฒ โ€” The price paid for borrowing money, usually stated in percentages and as an annual rate.

โญย ๐—Ÿ๐—ผ๐—ฎ๐—ป ๐—ผ๐—ฟ๐—ถ๐—ด๐—ถ๐—ป๐—ฎ๐˜๐—ถ๐—ผ๐—ป ๐—ณ๐—ฒ๐—ฒ๐˜€ โ€” Fees charged by the lender for processing a loan; often expressed as a percentage of the loan amount.

๐Ÿ”’ย ๐—Ÿ๐—ผ๐—ฐ๐—ธ-๐—ถ๐—ป โ€” A written agreement guaranteeing a homebuyer a specific interest rate on a home loan provided that the loan is closed within a certain period, such as 60 or 90 days. Often the agreement also specifies the number of points to be paid at closing.

๐Ÿก๐Ÿ“ƒย ๐— ๐—ผ๐—ฟ๐˜๐—ด๐—ฎ๐—ด๐—ฒ โ€” A contract, signed by a borrower when a home loan is made, that gives the lender the right to take possession of the property if the borrower fails to pay off, or defaults on the loan.

๐Ÿ“ˆย ๐—ข๐˜ƒ๐—ฒ๐—ฟ๐—ฎ๐—ด๐—ฒ๐˜€ โ€” The difference between the lowest available price and any higher price that the homebuyer agrees to pay for a loan. Loan officers and brokers are often allowed to keep some or all of this difference as extra compensation.

1๏ธโƒฃย ๐—ฃ๐—ผ๐—ถ๐—ป๐˜๐˜€ (๐—ฎ๐—น๐˜€๐—ผ ๐—ฐ๐—ฎ๐—น๐—น๐—ฒ๐—ฑ ๐—ฑ๐—ถ๐˜€๐—ฐ๐—ผ๐˜‚๐—ป๐˜ ๐—ฝ๐—ผ๐—ถ๐—ป๐˜๐˜€) โ€” One point is equal to 1 percent of the principal amount of a mortgage loan. For example, if a mortgage is $200,000, one point equals $2,000. Lenders frequently charge points in both fixed-rate and adjustable-rate mortgages to cover loan origination costs or to provide additional compensation to the lender or broker. Points are paid usually on the loan closing date and may be paid by the borrower or the home seller, or split between the two parties. In some cases, the money needed to pay points can be borrowed, but increases the loan amount and the total costs. Discount points (sometimes called discount fees) are points that the borrower voluntarily chooses to pay in return for a lower interest rate.

๐Ÿ›กย ๐—ฃ๐—ฟ๐—ถ๐˜ƒ๐—ฎ๐˜๐—ฒ ๐—บ๐—ผ๐—ฟ๐˜๐—ด๐—ฎ๐—ด๐—ฒ ๐—ถ๐—ป๐˜€๐˜‚๐—ฟ๐—ฎ๐—ป๐—ฐ๐—ฒ (๐—ฃ๐— ๐—œ) โ€” Protects the lender against a loss if a borrower defaults on the loan. It is a payment usually required of a borrower for loans in which the down payment is less than 20 percent of the sales price or, in a refinancing, when the amount financed is greater than 80 percent of the appraised value. When you acquire 20 percent equity in your home, PMI is cancelled. Depending on the size of your mortgage and down payment, these premiums can add $100 to $200 per month or more to your payments.

๐Ÿคย ๐—ฆ๐—ฒ๐˜๐˜๐—น๐—ฒ๐—บ๐—ฒ๐—ป๐˜ (๐—ผ๐—ฟ ๐—–๐—น๐—ผ๐˜€๐—ถ๐—ป๐—ด) ๐—ฐ๐—ผ๐˜€๐˜๐˜€ โ€” Fees paid at a loan closing. May include application fees; title examination, abstract of title, title insurance, and property survey fees; fees for preparing deeds, mortgages, and settlement documents; attorneysโ€™ fees; recording fees; estimated costs of taxes and insurance; and notary, appraisal, and credit report fees. Under the Real Estate Settlement Procedures Act, the borrower receives a โ€œgood faithโ€ estimate of closing costs within three days of application. The good faith estimate lists each expected cost either as an amount or a range.

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renovation homebuyer checklist

Want more? Request our homebuyer checklist:

The Operation Welcome Home program can give you cash back at closing. Our checklist will help prepare you for buying a new home. This checklist was created by an expert who can help you in your next steps.