Pre-approval allows you to get pre-approved for a specific loan amount prior to finding the home you want to purchase. The loan documents are reviewed, and the lender commits to a specific loan amount. A strong pre-approval can provide an advantage if someone else is interested in the same home simultaneously.
Pre-qualification is the method of determining how much money you will be eligible to borrow before the loan application process occurs. A pre-qualification letter does not hold much weight when making an offer on a home. Buyers are strongly encouraged to go thru the pre-approval process.
Initially, there is no fee collected for a pre-approval. All up-front fees such as an appraisal or credit report fee that may apply to your request will be collected if you choose to move forward with your loan.
You can lock or float your interest rate at any time during the process of your loan. Your loan officer will discuss these options with you upon taking your loan application.
Yes, you can make principal payments at any time during your loan term or pay the loan in full. You can also pay a set amount each month above the normal payment due or make lump-sum payments periodically.
PMI is Private Mortgage Insurance. On a conventional loan, PMI is required if you borrow over 80% of your appraised value or purchase price (whichever is lower). This protects the lender against financial loss if the loan is defaulted.
Points represent any loan discount points sometimes charged to lower the interest rate.
An escrow account is maintained by the lender to collect funds from the borrower in order to pay the taxes and property insurance due on the loan.
There are numerous types of ARM loans, with the most popular having a fixed term for a specified number of years (such as 5, 7, or 10 years) and can then be adjusted each year thereafter, up or down. These types of ARMs are referred to as 5/1 ARM, 7/1 ARM, 10/1 ARM, etc.
A Fixed loan has an interest rate that does not change for the duration of the loan, so your mortgage principal and interest payments stay the same. Whereas, with an adjustable rate mortgage (ARM) the interest rates are typically fixed for a specified number of years (5, 7, or 10 years) and can vary up or down after that period, based on an index.
Typically, if you’ve never owned a home, you are considered a first-time home buyer. Additionally, if you have not owned a primary residence for the last three years, you may still be considered a first-time home buyer. FHA loans are very popular for first-time buyers due to low down payment requirements.