If you are new to home financing, you may be a little confused by some of the common terms that are used in the process. These common terms will help simplify getting your home loan and ensure you understand what stage you are at and what comes next.
Getting A Loan
Pre-Qualification: This is a term that means you have been provided an estimate of what sort of loan you can expect to obtain based on your credit score and what’s currently available. It doesn’t guarantee you a loan or any loan terms.
Pre-Approval: This means that you have actually applied for a mortgage and the loan has been approved. Your approval is usually good for a certain time period during which you are guaranteed the terms of the loan.
Locked In: This is a term that means you have been promised a certain interest rate for a certain time period, usually 30 days.
Basics Of Loans
Principal: This is the amount that is owed on the loan, the actual amount financed excluding interest.
Interest Rate: This is the amount of interest, expressed as a percentage, that you will be paying on your loan.
APR (Annual Percentage Rate): Often confused with the interest rate, the APR is actually the yearly cost of financing the loan amount.
Term: This is the length of time over which the loan will be repaid.
Amortization: Paying off a large loan (mortgage) over a specified period of time.
Points: This is an amount of money that a buyer can choose to pay to the lender in order to get a lower interest rate. A point equals one percent of the loan amount. This is usually paid at closing in order to get a lower rate.
Completing The Process
Closing: This is the point at which the loan is complete and the terms become active. At closing everything will be signed and completed.
Closing Costs: Fees and other costs that must be paid at the time the loan closes in order to make the terms active.
Loan Funding: This is the time at which the lender actual provides the funds requested in the loan.
These are some of the most common terms you will hear as you go through the process of obtaining a mortgage. Be sure to talk to your broker or loan officer if you have any questions regarding these or any other terms you come across; this will ensure you feel in control of the process and are entering your mortgage agreement with full understanding of the terms.