How Pre-Qualifying Can Help With The Homebuying Process
Learn what pre-qualification is and how it might help you buy a new home.
Housing Terms 101
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When preparing to buy a home, the first thing all homebuyers should do is sit down with a Mortgage Loan Originator and go over a mortgage application. During the application process, homebuyers will learn all loan options available to them, what payment estimates look like, what they can afford and what payment fits within their budget. The application process will determine what buyers are prequalified for and results in being issued a prequalification letter. By having this letter in hand, buyers are able to get in touch with a local and trusted Real Estate Agent to begin the home search process. By speaking with a Mortgage Loan Originator first, buyers can be comfortable throughout the home search process in what price range they should be searching within and what price range they are comfortable with. In a competitive marketplace, being prepared and knowing your options will be a distinct advantage over other buyers who aren’t certain on financing options.
Throughout the process, homebuyers will hear terms that are commonly used during this process. Realtors, lenders, home inspectors and others may refer to terminology specific to obtaining a home loan or specific to purchasing a home. Some common terminology and definitions are listed below:
- Annual Percentage Rate (APR) – This is the actual rate of interest that you repay the loan. The APR takes into consideration the interest rate plus loan cost over the course of a year. This is a great comparative tool if you are shopping around for a mortgage. Lenders may offer the same rate but may have different APR’s based on loan cost(s).
- Loan Estimate (LE) – All lenders are required to disclose a loan estimate once an application has been processed and a property has been selected for purchase. The Loan Estimate is just what it says, an itemized estimate of the loan costs, escrow set ups, etc. The LE also covers the terms of the loan, interest rate and shows an estimated monthly payment. If you are searching for the APR on a loan, you can find it on an LE.
- Down Payment – The down payment is truly what home buyers put down. This is the difference between the purchase price and your loan amount. Your down payment on the home loan will not be due until closing and will be paid along with your loan costs and prepaid items.
- Points – Home buyers can pay a lender points to reduce the interest rate on the loan, resulting in a lower monthly payment. The point(s) paid is a percentage, sometimes one percent, of the loan amount. Depending on the scenario, one point may lower the interest rate on the loan one-eighth to one-quarter of a percent.
- Private Mortgage Insurance (PMI) – Private Mortgage Insurance is something that homebuyers will pay with conventional financing if they aren’t able to obtain a 20% down payment. PMI is separate from home insurance and in most cases will eventually go away once you’ve obtained enough equity in your home.
Find a member of the Great Western Bank Mortgage Team near you.
Chris Knight
Mortgage Manager
Great Western Bank
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