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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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