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If you are unfamiliar with the home buying
process, these terms and procedures may be of value in your quest to buy your
own home.
Prequalification
Prequalification is
the best way to get started. Ask a lender to analyze your current income, debt
and credit history to qualify for a maximum loan amount. The loan amount plus
your closing costs and down payment gives you the maximum sales price you can
anticipate paying for a home. A certificate of prequalification does not mean
that the mortgage loan is approved. Loan approval means you are a qualified
buyer, ready, willing and able to perform.
Down Payments
Down payments may vary
from 0% to upwards of 25%. As an average, most home buyers make down payments
in the 5%-15% range. You may choose to make a larger or smaller down payment if
a specific amount is not required to qualify for your loan.
PITI
PITI
refers to the four elements that make up the monthly payment.
- Principal
Repaying
the original loan amount on a monthly basis
- Interest
The cost
of borrowing the principal amount, repaid on a monthly basis
- Taxes
Property
taxes paid to a local government agency.
- Insurance
Homeowners insurance on the
home. Also any mortgage insurance that is paid to protect the mortgage
company.
Types of Mortgages
- Fixed
A fixed term
as well as a fixed interest rate. The interest rate and term are fixed at the
start of the mortgage. The monthly amount of the payment of principal and
interest will not change during the term of the loan.
- Adjustable
Also
known as an ARM (Adjustable Rate Mortgage). The interest rate on the mortgage
will be adjusted up or down to current interest rate levels. The monthly amount
for your principal and interest payment will go up or down with these rate
changes. The rate is based on one of several indices that reflect the current
cost of money.
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