Posted on January 6, 2016
It is easy for first time home buyers to quickly become overwhelmed with a slew of strange terms and phrases. In order to help beginners better understand one aspect of the home buying process, we have put together a helpful collection of some common loan types and lending terms that everyone should be familiar with when buying a home.
PARKS is here to help you understand what you are getting into when purchasing a home! Contact us today if you have any questions.
Understanding Loan Types
FIRST TIME BUYER
One great option for those looking to a purchase their first home is a first time buyer loan. These loans are offered by FHA-approved lenders and cater to the unique needs of a beginning home buyer. This type of loan features:
- Favorable loan-to-value rates
- Adjustable or fixed interest rate
- Less strict income / down payment requirements
A first-time buyer loan is much more accessible and allows individuals that are burdened with spending a higher percentage of their income paying off debt a chance to purchase their first home.
DOWN PAYMENT ASSISTANCE
Making a down payment for the first time can be tough to pull off. A down payment assistance loan can help those seeking to make their first ever down payment by combining with a traditional loan to achieve 100% financing for a first home. Luckily for first-time home buyers, most states offer this kind of loan!
Down payment assistance loans were introduced as a way to help lower income families afford the daunting down payments that come with purchasing a home, therefore stimulating the economy. Make sure to ask your lender about down payment assistance!
GRADUATED PAYMENT
If you expect your income to increase over the forthcoming 5-10 years, then a graduated payment loan might be the best option. This type of loan is much different from a conventional loan that is paid back in equal payments.
With a graduated payment loan, payments begin incredibly low – they don’t even cover the interest! However, payments increase each the loan is still active. This type of loan is aimed at giving potential home buyers a chance to apply for a mortgage much sooner than a traditional loan would.
Essential Real Estate Lending Terms
Here are some important terms that someone buying their first home is sure to hear. Get familiar with these essential lending terms:
ADJUSTABLE RATE MORTGAGE (ARM LOAN)
A loan that, unlike a fixed-rate mortgage loan, offers a lower initial interest rate that could increase after the initial term ends. This initial terms typically ends after 1-2 years.
ANNUAL PERCENTAGE RATE (APR)
Your APR is your interest rate set by your mortgage company plus any other home loan costs. It will always be higher than the advertised interested rate because of the additional aspects.
CLOSING COSTS
Any additional compensation that must be paid out to agencies or any other payments that accompanies a real estate transaction.
ESCROW
A neutral third-party that keeps hold of any documents and money involved with a real estate transaction until it is completed.
FIXED-RATE MORTGAGE
A mortgage that features the same interest rate throughout the life of the loan.
Loan-to-Value Ratio (LVR)
The amount of financing a buyer receives in relation to the value of the home they are buying.
PRIVATE MORTGAGE INSURANCE (PMI)
This protects the lender against losses if a home loan was to go into default. Most lenders will require PMI on loans that cover 80% or more of a home’s financing.
TITLE INSURANCE
Required on home mortgages, title insurance protects both the buyer and seller in a real estate transaction from flaws in a home’s title.