You may have heard that now is a good time to buy a house, what with the housing market recovering yet home mortgage rates remaining low. But once you actually start looking at your options and comparing home mortgage rates, you may find it’s not as easy as you expected. You may not even understand enough of what you’re looking at to make useful comparisons. To get you started, here’s a glossary of the top 12 terms you’ll need to know in order to figure out what home loan is right for you:
- Adjustable Rate Mortgage
A home loan on which the interest rate may change over time according to an index.
The paying down of the principal, or loan amount. When a loan has been “fully amortized,” it’s been paid off.
- Annual Percentage Rate
The APR includes not just the interest rate given to you by your mortgage company, but also additional fees. For that reason, it’s always at least a little higher than advertised interest rates.
- Construction Loan
A temporary loan you can take out to build a house.
- Conventional Mortgage Loan
Any home loan that isn’t insured or guaranteed by the government.
- Credit Report
A credit report is a detailed report of your credit history. It shouldn’t be confused with a credit score, which is a three-digit number also based on your borrowing history. There are some mortgage lenders that specialize in bad credit home loans, but you’ll normally need a credit score of 680 to get the best interest rates.
- FHA Loan
FHA home loans are overseen by the federal housing administration. Along with Veterans Affairs loans, they are the most common type of federally insured loan.
- Fixed Rate Mortgage
Fixed rate home loans have an interest rate that stays the same for the whole loan period; 30-year fixed rate mortgages are often considered to be the benchmark loan type for the industry.
- Home Equity
The difference between what a house is worth and how much is owed on its mortgage.
- Interest Rate
Money, measured as a percentage, that is paid over and above the principal as part of the cost of borrowing.
- Lock In
To secure a mortgage rate. Home mortgage rates change daily, so it’s advantageous to lock in a rate while interest is low.
Shorthand for principal, interest, taxes, and insurance. The PITI represents the true cost of a mortgage payment.
Do you feel more prepared to take on the mortgage market? Comment to share any other terms you think should be on this list.