Working in the mortgage industry, lenders get used to using some specific industry terminology. However, as a customer, you might not always be familiar with those terms. We want to make sure that you understand these terms so that you feel empowered to make informed decisions. Here is a quick overview of some common industry terms that you might encounter during a conversation with your lender:
Mortgage – This is your home loan. It’s a contract between you and your lender that lays out the conditions of the loan. You’re basically using the home as collateral and borrowing the amount of money that the home is worth, plus paying interest on that amount.
APR – This is the Annual Percentage Rate and refers to the percentage interest rate per year applied to your mortgage along with other points and fees. This might include items like origination fees or discount points. It’s important to pay attention to this as some loans might have a slightly higher interest rate, but if the other costs are lower, it could end up saving the homebuyer money over the time of the loan.
Rates – This refers to the interest rate and is impacted by the length and type of loan. You might have a 30- or 15-year fixed rate mortgage where the interest rate never changes, or you might have a variable rate which will go up and down with the market.
Loan Types – Not all mortgages are the same, and there are a variety of loan types available to homebuyers and homeowners. Here’s a breakdown of a few common loan types:
- Conventional – This is what you would traditionally think of as a mortgage. Borrowers here often have good credit and between three and 20 percent to use as a down payment. These loans are not backed by any government agencies and are provided through private lenders such as banks or other financial institutions.
- Jumbo – These loans are used for homes that cost quite a bit more than the average for the area. They have very strict qualification guidelines and are not backed by the government, Fannie Mae or Freddie Mac.
- VA – These loans are guaranteed through the U.S. Department of Veteran Affairs, and are available to veterans, service members and some military spouses. These are often available as zero money down with no PMI (Private Mortgage Insurance).
- FHA – This is a mortgage that is insured by the government through the Federal Housing Administration. These are often used by borrowers who have lower credit scores or lower down payments.
- Alt-A/Bank Statements – Borrowers will use their bank statements instead of their tax returns to qualify for the loan. This is commonly used by people who have inconsistent income or don’t receive regular paychecks. Small business owners, entrepreneurs/freelancers, doctors who own their own practices and even real estate agents often use this type of loan.
There you have it! A quick overview of some key mortgage terms that may come up when speaking to a loan officer. If you ever have questions about terminology used, please ask your America’s Moneyline representative. We’re happy to explain all areas of your mortgage to make sure you understand your loan and are making the right decision for your individual situation.