When it comes to applying for mortgage loans, you may very well feel like you’re wading through a bowl of alphabet soup. Home mortgage terms can be difficult to understand for the novice, especially coming from a mortgage loan broker who’s been in the business for years and has forgotten how to speak in plain English.
Luckily, we’ve got a quick glossary of terms for your easy reference, so you can at least act like you know what you’re doing when you’re in negotiations. Remember: the number-one rule of getting a mortgage is to lock in a rate as soon as you’re comfortable with the numbers! (Before that, learn what those numbers mean.)
Adjustable Rate vs Fixed Rate Mortgages: An adjustable rate (orften abbreviated as ARM) will change your interest owed periodically according to a standard index of mortgage rates. A fixed rate will be predictable throughout its time. Both have their advantages and disadvantages. Talk with mortgage companies about which is right for you.
FHA Home Loans: FHA stands for Federal Housing Authority. This program allows people with lower credit scores to still apply for mortgages with an additional insurance fee. Whereas most lenders require a credit score of at least 680, FHA often takes 620.
Down Payment: This is how much you pay upfront for your house, which shaves off the cost of your mortgage plan. You can often counteract a low credit score with a higher down payment, too.
Escrow: An escrow is an account held by a neutral third party for all documents and funds until the entire mortgage is paid off, meaning the deal is complete. This might be an attorney or title company.
Refinancing: This is what it sounds like: negotiating a new loan with a new interest rate, to pay off the old loan. Helpful for when current mortgage rates are significantly lower than they were in years past — like right now.
Hopefully these words definitions give you an introductory foray into the wordy world of home mortgage terms. In the end, if your broker can’t explain conditions clearly to you — it may be time to look for a new broker.
