Home-Buying Lingo Explained: All Things Mortgage, Part I
The home-buying landscape is littered with acronyms, which can leave some customers feeling as though they’ve wandered into an advanced Latin class. Most of us are familiar with basic terms such as “mortgage” — AKA, your home loan — and can figure out items such as “equity.” Google saves the day, right?
But we know you don’t want to grab the phone every time you hear a mystery phrase, and that you’d probably like to learn some of the common language spoken by industry professionals.
The new custom Florida home you may be considering right now could be your first home purchase, and what you learn will come in handy when you’re ready for your next home.
Mortgage acronyms
For those of you honest enough to admit you don’t know, we’ll save you the Google. An acronym is comprised of the first initials of each word in a term.
Here’s a common one when discussing mortgages: “FHA loan.” The Federal Housing Administration helps buyers usually trying to purchase their first home, who usually need some extra qualifying and financial assistance.
Here’s another: “PMI.” It stands for private mortgage insurance, which is what you’ll need if you can’t supply a minimum 20 percent down payment on your new home.
A “VA loan” is one that’s supported by the U.S. Department of Veterans Affairs. The VA helps veterans buy homes similarly to how the FHA assists buyers who need extra financing and mortgage approval help.
And finally, an “ARM.” It stands for adjustable rate mortgage. This home loan isn’t locked into a fixed interest rate for the life of the loan. It can take advantage of a low interest rate at the outset, but its interest rate will go up if and when all interest rates rise.
Other mortgage terms
Since we just tackled an ARM, let’s discuss a “fixed-rate” loan. You already might’ve guessed a fixed-rate mortgage doesn’t change its interest rate. Correct!
The “fixed” interest rate you contract with your lender is the one that’ll govern the life of your mortgage. This means you don’t have to fear the Federal Reserve deciding to raise rates — and lenders following suite — for whatever reason.
A “conventional” loan doesn’t mean a boring loan. It means what most of us would call the “industry-standard” loan, or perhaps the most common type of mortgage. A “conventional” loan is a direct business transaction between you and your lender, typically a bank or credit union.
So what’s an “unconventional loan?” FHA and VA loans are good examples; government-assistance for folks who need extra approval and financing help.
Want one more? How about “amortization?” While it can be tricky to say, its explanation is fairly straightforward. The verb form, “amortize,” means “to pay off.” So “amortization” means the cycle of paying off a loan.
Google saves the day, right?
