With all the scuttle butt about lenders making bad loans, the sub-prime market, credit scores falling, and all other craziness that is going on. Here are some frequently used terms when buying a new house. Before you pursue a new home be at least pre approved if not pre qualified (find the difference below) for the best barging power. Don't fear the builders lender, in most cases they are there to hep with the transaction not hurt.
Pre-Approval
When you work with your lender to get pre-approved, you are getting an indication of how much money you will be eligible to borrow when you apply for a mortgage. This process occurs before you complete an application for a loan. Pre-approval includes a screening of a borrower's credit history, and all information you give to your lender will be verified when you apply for your mortgage.
Pre-Qualification
The process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan.
Adjustable-Rate Mortgage (ARM)
A mortgage that permits the lender to adjust its interest rate periodically on the basis of changes in a specified index.
Fixed-Period Adjustable-Rate Mortgages
This type of adjustable-rate mortgage (ARM) maintains the same initial interest rate for the first three, five, seven, or 10 years of your loan, depending on the term you choose. Your interest rate then adjusts annually, and can move up or down as market conditions change. Be sure to ask your lender about the interest rate caps for both the annual adjustments and for the life of the loan.
Advantages:
- Your initial interest rate will be lower than a fixed-rate mortgage, so you may be able to afford more home.
- You are protected against interest rate increases for the first three, five, seven, or 10 years of the loan, depending on which type of fixed-period ARM you choose.
- You may have the option to convert your ARM to a fixed-rate mortgage at the first, second, or third interest rate adjustment dates.
- You have time to improve your financial position (i.e., salary increases) or accumulate additional assets before the interest rate adjusts at the end of the fixed period
Details:
- The lifetime interest rate cap for fixed-period ARMs is typically 5 to 6 percentage points above your initial rate. Your annual cap during the adjustable period is typically 1 to 2 percentage points above or below over the current rate.
- Can be used to buy one- to four-family residences including second homes and condos, co-ops and planned unit developments. Manufactured homes are also eligible. (Manufactured housing units must be built on a permanent chassis at a factory and then transported to a permanent site and attached to a foundation.)
FHA Loans
With FHA insurance, you can purchase a home with a low down payment from 3 percent to 5 percent of the FHA appraised value or the purchase price, whichever is lower.
FHA mortgages have a maximum loan limit that varies depending on the average cost of housing in a given region. In general, the loan limit is less than what is available with a conventional mortgage through a lender.
Fixed Installment
The monthly payment due on a mortgage loan. The fixed installment includes payment of both principal and interest.
VA Mortgage
A mortgage that is guaranteed by the Department of Veterans Affairs (VA). Also known as a government mortgage.
These are very common terms for types of loans available ant the meanings behind them. Stay tuned more to come...
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