Applying for a Mortgage

After you have figured out how much of a down payment you can afford or how much down payment assistance you can receive, determine all the costs that will be involved in the loan. Knowing just the amount of monthly payment or the interest rate is not enough. Gather information about the loan amount, loan term, and type of loan, so that you have a better understanding of your mortgage.

Here is a list of important mortgage terms:

Adjustable Rate Loans- These loans generally begin with an interest rate that is 2-3 percent below a comparable fixed rate mortgage. The interest rate fluctuates over the life of the loan based on market conditions, but the loan agreement generally sets the maximum and minimum rates. When interest rates rise, your loan payments also rise and when interest rates fall, your loan payments also drop. There are also mortgages that combine aspects of fixed and adjustable rate mortgages-- starting at a low fixed rate for a certain number of years and then, adjusting to market conditions. If I determine that other special mortgages favor you, then, I will certainly explain those types of mortgages and their conditions.

Annual Percentage Rate- Is the cost of credit expressed as a yearly rate. It is designed to represent the true cost of the loan to the borrower, including the interest rate, points, broker fees, and certain other credit charges that the borrower is required to pay.

Balloon Mortgages- These are short term mortgages that have some features of a fixed rate mortgage. The loans provide a level payment feature during the term of the loan, but unlike the 30 year fixed mortgage, these loans do not fully amortize over the original term. At the end of the loan term, there is still a remaining principal loan balance and the mortgage company generally requires that the loan be paid in full, which can be accomplished by refinancing. However, I can also convert your loan at the end of the term for your convenience. We can discuss these balloon mortgage programs that are often called 7/23 Convertible or a 5/25 Convertible.

Conventional Loans- These loans are secured by government sponsered entities, such as Fannie Mae and Freddie Mac. These loans may be used to purchase or refinance homes with first and second mortgages on single family to four family homes.

Escrow-Is the holding of money or documents by a neutral third party prior to closing. It may also be an account which is held by the lender into which a homeowner pays money in taxes and insurance.

Fixed-rate Loans- This is the most common type of mortgage program where your monthly payments for interest and principal never change. Property taxes and homeowners insurance may increase, but your monthly payments will be very stable. Fixed rate mortgages are available for 30 years, 20 years, 15 years, and even 10 years. There are also "bi-weekly" mortgages which shorten the loan by calling for half the monthly payment every two weeks (since there are 52 weeks per year, you make 26 payments or "13" months worth every year).

Interest Rate- Is the cost of borrowing money expressed as a percentage rate. Interest rates change due to market conditions.

Loan Origination Fees- Fees charged by the lender for processing the loan and are often expressed as a percentage of the loan amount.

Lock-in- A written agreement which guarantees the home buyer a specific interest rate on a home loan provided that the home closes within a specified time interval such as 60 or 90 days.

Points- Fees paid to the lender for the loan. One point equals 1 percent of the loan amount. They are usually paid in cash at closing.

Private Mortgage Insurance- Protects the lender against a loss if a borrower defaults on a loan. It is usually required on purchase loans in which the down payment is less than 20% of the sales price and in refinance loans, when the amount financed is greater than 80% of the appraised value.

Remember, we are here to educate you throughout the process. So, if there is something that you don't understand, please feel free to ask. We provide you with a Good Faith Estimate that details all the costs that you can expect to incurr.

We will get you pre-qualified for the loan at our initial meeting. This is a simple process of evaluating your income, job history, amount of debt, and credit history. After this, we will recommend the best type of mortgage to fit your particular needs.

This concludes your pre-qualification and pre-approval phase, now you can go house hunting. How exciting!

Understanding the Process

Applying for a Mortgage