Buying a home can be a complicated process and it can be difficult to understand all of the terms used for your home loan. It is important to understand these terms before you apply for a home loan so that the process can go efficiently. Some common home loan terms include pre-qualification and pre-approval, mortgages, and good faith estimates.
Pre-qualification and pre-approval for home loans
Although being pre-qualified to buy a home can be an exciting feeling, this term does not mean that you have been qualified for a home loan. A pre-qualification is simply an estimate of how much a bank might be willing to lend you to buy a house. A pre-approval is more concrete than pre-qualification and involves looking into your finances, credit score, and income.
Mortgages or home loans
Once you have been pre-qualified and pre-approved for a home loan, or mortgage, you must be underwritten for the mortgage by a lender. There are several kinds of mortgages and each one has different requirements. A conventional mortgage requires 20% down of the purchase price and usually has a lower interest rate. Other mortgages allow a smaller down payment at a higher interest rate. One such program is an FHA loan, which allows your debt to income ratio to be higher than a conventional rate, or somewhere between 40 and 50%. However, you will have to pay mortgage insurance for the first 5 years of the loan with an FHA loan. This mortgage insurance helps protect the lender in the event you default on your home loan.
There are different types of home loans that you can take out to buy your house. A fixed rate loan allows you to know that your payment will remain the same throughout the life of the loan. An adjustable rate loan, however, can fluctuate throughout the life of the loan.
Good faith estimates for home loans
All lenders will provide you a good faith estimate of all the costs involved in the process of buying your house. This term refers to a form that will explain each individual cost and where the cost is coming from. You will use the good faith estimate during the closing process, so it is important to keep it somewhere safe.
If you would like more information about home loans, or about buying and selling real estate, contact the experts at Elite Real Estate Group in Amarillo, Texas. Call us today at (806) 337-0883 or Contact Us by email to learn more about our services. You can also View Our Listings to see the real estate we currently have available in the Texas Panhandle.