To make buying a home a more pleasant experience we offer some tips we have gathered as both a home buyer and a realtor. The goal is to simply a complex and emotional time in your life.
Prior to looking for a new home many realtors and sellers request a mortgage preapproval. This helps you estimate your monthly payment and the cost range for your new home. Please visit our finance page to start this process.
At some point you should sit down and discuss your desires in regard to location and home requirements. You should have your definite requirements and the areas you are willing to bend. This can be a lengthy process and the more preplanning the better.
The buying process can be lengthy through negotiations and the going back and forth, however, as your agent our job is to keep you informed on what is happening and what is next.
Our goal is to help define some words to help alleviate the confusion.
Adjustable Rate Mortgage (ARM)
A mortgage, which allows the lender to adjust the mortgage’s interest rate periodically on the basis of changes in a specified index. Interest rates may move up or down, as market conditions change. The change in interest rate will result in a change in the periodic payments due under the mortgage. ARMs are attractive when short-term interest rates are trending lower.
Usually a short-term fixed-rate loan that involves small payments for a certain period of time with the balance due in a single, large payment at a time specified in the contract. Whenever the balloon mortgage becomes due, the entire unpaid balance is due. Generally, the homeowner must either refinance or sell the property.
The payment of extra money on a loan now so as to provide a lower interest rate over either a given period or over the life of the loan. To buy-down a mortgage, the buyer pays additional points to the lender, which will decrease the interest rate for a specific period.
Conventional home mortgages, first mortgages up to loan amounts mandated by Congressional directive, which meet the qualifications for sale or delivery to either the Federal National Mortgage Association (FNMA) or the Federal Home Loan Mortgage Corporation (FHLMC).
A structured, short-term loan to provide funds necessary to begin construction on buildings or homes.
A mortgage loan made by an institutional lender without the inclusion of government guarantees such as VA or FHA loans.
The convertible ARM is a combination of both fixed-rate and adjustable rate mortgages, allowing the best of both options in one package.
Deferred Interest Mortgage
A mortgage in which the payment is not sufficient to cover the principal and the interest and the payment portion of the interest is postponed until a certain date at which time the interest postponed is added to the principle owing.
Federal Housing Administration (FHA)
An agency of the federal government, the Division of the Department of Housing and Urban Development, that sets standards for the underwriting of private mortgages and insures residential mortgages made by private lenders.
Federal Housing Administration (FHA) Loans
Federal Housing Administration (FHA) low-rate loans are available to Americans with smaller incomes who are interested in modestly priced homes. Down payment requirements are usually lower than the prevailing ones.
The interest rate you pay and the monthly principal and interest payments are agreed upon from the outset and will not change throughout the entire term of the mortgage.
Graduated Payment Mortgage (GPM)
A mortgage that usually starts the borrower with low payments that are gradually increased over five to ten years, before leveling off for the remainder of the term of the loan until the loan is fully amortized. Negative amortization usually occurs until the payment reaches the level payment stage. Usually government insured loans (VA or FHA)
Growing Equity Mortgage (GEM)
This is a long-term mortgage whereby the borrower agrees to increase his payment each year by an agreed amount. The added money per payment is applied directly to the outstanding principal on the mortgage. The mortgage thereby is paid off in a shorter number of years.
Renegotiable Rate Mortgage (RRM)
Similar to an Adjustable Rate Mortgage, this type of mortgage allows the interest rates and payments to be adjusted periodically according to an index.
Reverse Annuity Mortgage (RAM)
A type of mortgage where the property’s equity serves as security for periodic payments made by the lender to the borrower. Mortgage is generally paid out upon the sale of the property.
Rollover Mortgage (ROM)
A mortgage where the payments are only guaranteed for three, four, or five years. The borrower is allowed to refinance at the end of the term at the interest rate then applicable.
Veterans’ Administration Loans
Mortgage loans to veterans by banks, savings and loans, or other lenders that are guaranteed by the Veterans’ Administration, enabling veterans to buy a residence with little or no money down.
A secondary financing option in which a new larger mortgage is created to encompass the first mortgage. This large second mortgage is used to preserve the low interest rate on the first mortgage for a potential buyer.