Before you make your first home purchase, there are 10 important terms you need to know.
1. Fixed-rate mortgage. This is a mortgage that has a fixed-rate during its term. So if you have a rate of 4.25% on a five-, 10-, 15-, or 25-year mortgage, your rate will not change during this time unless you refinance.
2. Adjustable-rate mortgage (ARM). This is the opposite of a fixed-rate mortgage. With an ARM, you will have a shorter term of between five or 10 years. The details of this style of mortgage can be complicated, so I recommend you speak more in-depth on the subject with your lender.
3. Pre-qualification. This is the process where a lender verifies your ability to obtain financing for a home. To become pre-qualified, you will provide the lender with a number of documents.
4. Conventional loan. This type of loan typically carries a 30-year mortgage. To qualify for a conventional loan, you need a minimum credit score of 650. Also, the average down payment for a conventional loan is 5%.
5. FHA loan. This loan product is great for anyone who has had credit problems. It allows you to put just 3.5% down, but you will have to carry mortgage insurance on the loan. However, you can take this insurance off at a later time.
6. Appraisal. This is the process wherein a third-party company examines your home’s value compared to other similar properties in the vicinity. Factors such as a home’s condition, style, lot size, and more are all taken into consideration.
7. Mortgage insurance. This is insurance designed to protect the bank. To avoid paying it, you will need to put at least 20% down. There are ways around this, though, and plenty of programs allow you to forgo this cost.
8. Closing costs. These expenses, which will include things like the cost of your home inspection, will likely amount to between 2% and 5% of the purchase price.
9. Buying down your interest rate. If you have a high interest rate due to your credit score, you can pay cash to literally buy down your rate.
10. Escrow. An escrow account is a locked account that holds the buyer’s deposit so that neither they nor the seller can withdraw it.
If you have any other questions or would like more information, feel free to give me a call or send me an email. I look forward to hearing from you soon.