Thinking about buying a home this spring? You're not alone! Spring is one of the busiest time to buy and sell a home.
If you're planning to purchase a home in the spring, you'll want to be as prepared as possible. Whether you're buying your first home or your third, it may be a good idea to brush up on the mortgage terminology you may encounter in the home buying process.
Here are some common mortgage terms:
Annual percentage rate (APR)
APR refers to the total annual cost of borrowing money from a lender. It includes the loan's interest rate, plus any fees associated with the loan. When you're shopping for mortgage loans, pay attention to the APR. It will give you an idea of a mortgage's true cost and help you compare your options.
A fixed-rate mortgage is a popular choice for many homebuyers. It takes a lot of the guesswork out of your loan. With a fixed-rate mortgage, the rate stays the same until you pay off the loan or refinance it. Fixed-rate mortgages typically come in 30-, 20-, 15- or 10-year terms.
Adjustable-rate Mortgage (ARM)
Unlike a fixed-rate mortgage, an adjustable-rate mortgage (ARM) has interest rates that change after a period of time. An ARM will use a fixed rate for a certain loan term — often 3, 5, 7 or 10 years. When the fixed period is over, the rate may adjust up or down, depending on current interest rates in the housing market.
Mortgage FICO® Score
When you apply for a mortgage loan, lenders want to know what risk they'd take by loaning money to you. FICO scores are the credit scores most lenders use to determine how much and what loan terms to offer you. As you prepare to buy a home, take steps to get your FICO scores in the higher ranges. This can help you qualify for a better mortgage rate, which means lower monthly mortgage payments!
Closing costs are the payments you make when you finalize buying your home. Common closing costs may include property taxes, loan origination fees, homeowners insurance, title fees, appraisal fees and pest inspection. A common estimate of a buyer's closing costs is 2% to 5% of the purchase price of the home.
Home loan pre-qualification
A home loan pre-qualification is a way for a lender to determine if you qualify for a home loan. It will also give you a useful estimate of how much a lender is willing to lend you. Getting prequalified is the first step towards getting a mortgage loan, although it's not a loan commitment.
Buying a new home is exciting, but it can also be stressful. A pre-qualification letter from a mortgage lender can give you a competitive edge over other buyers, since most sellers prefer buyers who already have financing secured.
It can be confusing to navigate all the terms, jargon and acronyms that come with buying a home. That's why Wright-Patt Credit Union (WPCU) is here to help you throughout every step of the mortgage process. We'll show you how to prepare for your purchase, grow your savings and find the mortgage that's right for you!
Want to learn more about your mortgage options? Visit us online or stop by a local Member Center and make an appointment to talk to our mortgage professionals.