Lending Terms Explained for First-Time Home Buyers
Are you thinking about buying a home but feeling baffled by some terms that you hear or read? Find explanations for common terms related to securing a mortgage for your home and explanation of how to choosed between a fixed and adjustable rate mortgage.
Now that you are seriously considering purchasing a home, get used to the terms that you will hear realtors, lenders, and mortgage brokers use on a daily basis. The first term that you’ve heard a thousand times or more is the mortgage. This term refers to an agreement between you and the lender in which the lender puts up the money for the property and you make payments of principal and interest over time to repay the lender. Once you have satisfactorily repaid the mortgage loan, the lender will sign over the title of the property to you or give you a satisfaction of mortgage.
Factors for Choosing the Right Mortgage for You
Before choosing a mortgage lender and obtaining a pre-approval letter so that you can shop for a house, it is important to understand the types of mortgages.
You will ultimately pick a mortgage that works for you based upon:
- Your budget
- Your future earnings
- The number of years you want to repay the loan
- The amount you wish to borrow
- The amount of your down payment
You will have time later in the buying process to choose the final terms of the loan, but you will want to select a lender up front that offers you at least one type of loan product that suits you.
Principal and Interest
Regardless of the type of loan, you will repay principal and interest.
Principal refers to the initial amount that you borrow.
Interest refers to the percentage of the loan that you will pay in addition to the original principal over time to the lender.
There are many other terms to understand as you continue buying a home. Get educated along the way. Ask as many questions as you must. When you buy your house, it should be a decision that you make after carefully weighing your options.