What is that for? Sometimes learning what everything means when speaking with your lender for a mortgage can take more time than anticipated. Here are some quick key terms to know before getting a loan.
Adjustable-Rate Mortgage (ARM): ARM is a long-term loan with an interest rate that changes based on adjusting market rates. There may be rate caps on how much the interest can rise/fall during the loan period. The loan has a fixed period (in the first 5-7 years the rate is static) and an adjustment period (after the fixed period where the rate can increase or decrease).
Annual Percentage Rate (APR): APR is the annual interest rate you, as the borrower, pays on the loan.
Appraisal: This is an estimate of a home’s worth, or its fair market value, and typically required by mortgage lenders before they give you a loan.
Down Payment: The first payment made up front on a mortgage loan and a percent of the loan value is the down payment. There is not a required percentage for this, and it depends on the type of loan, the loan investor, and what your future financial goals may be.
Fixed-Rate Mortgage: These loans have the same interest rate throughout the entire life of the loan, despite any market changes.
Pre-approval: This document informs you how much home you can afford and is often the first step for obtaining a mortgage and before the homebuying journey begins. Lenders determine this by examining credit history and other financial information.
Private Mortgage Insurance: Private mortgage insurance protects lenders if you stop making loan payments. It is usually required if less than a 20% down payment is made and often required with conventional loans.
See Rocket Mortgage’s Glossary of Mortgage Lending Terminology | Rocket Mortgage for more helpful mortgage key terms to know before getting a loan!