Getting a preapproval for a mortgage is key first step in the home-buying process.

Can you afford the home you love? Quickly find out!

A preapproval is a letter from a lender giving the buyer a conditional approval for a mortgage loan, up to a specific amount. The lender can usually tell you quickly about how much you can borrow based on your financials, including howpiggy bank much money you’ll at closing, and your approximate monthly payment.

Now that’s definitely something you need to know.

Stash back some emergency money for after closing: if you’re buying new construction, your taxes for next year may be higher depending on how the assessor has taxed the property at the time of closing (with or without a house on the lot). 

See more about money and your new home →

 

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Mortgage Keywords

Annual Percentage Rate (APR): 
The APR includes the base interest rate, points, and other loan fees. It is a great way to compare the cost of loans from different lenders because the calculation of the APR is standardized. 

Amortization:
The gradual repayment of a mortgage loan through scheduled, periodic payments, covering both principal and interest.

Adjustable-Rate Mortgage (ARM):
A mortgage with an interest rate that can change periodically, typically in relation to an index.

Closing Costs: 
Title search, origination fees, discount points, prepaid of taxes and insurance, and real estate transfer taxes, which are fees paid outside of the actual loan, make up closing costs.

Discount Points: 
A point is 1% of the home loan. Borrowers can pay points at closing as a way to buy down the overall interest rate and mortgage payment. 

Down Payment:
The initial payment made by the borrower, usually a percentage of the home’s purchase price, paid upfront to secure the mortgage.

Equity:
The difference between the current market value of a home and the outstanding balance of all liens on the property.

Escrow:
An account held by the lender to collect and disburse property-related expenses, such as property taxes and insurance, on behalf of the borrower.

Fixed-Rate Mortgage:
A type of mortgage where the interest rate remains constant throughout the life of the loan.

Loan-To-Value (LTV) Ratio: 
A mortgage lender divides the amount of the loan by the asking price of the home to come up with a percentage. A high LTV, such as 90%, means the borrower only has to contribute a small down payment (in this case 10%), while a lower LTV, such as 70%, requires more cash to put down, but may negate the need for private mortgage insurance. 

Mortgage Insurance – Private Mortgage Insurance (PMI): 
This protects the lender in the event of a default. When buyers take out a mortgage down payment of less than 20%, they must pay mortgage insurance, a monthly premium that is added to the mortgage. This protects the lender should a buyer default on the home loan. 

Principal, Interest, Taxes, and Insurance (PITI): 
These are four elements that make up a monthly mortgage payment. Payments of principal and interest go toward repaying the loan, while the payment for taxes and insurance usually goes into an escrow account to cover those fees when they are due. 

Pre-Paids: 
Some costs, such as taxes, insurance, assessments, and interest, are paid before the first monthly mortgage payment is due. 

Prepayment Penalty:
A fee charged by lenders if the borrower pays off the mortgage before the agreed-upon term, designed to compensate for the interest that the lender will not receive.

Qualifying Ratios: 
A formula is used to determine the loan amount borrowers may qualify for based on the ratios of income to expenses, partially determined by the percentage of the borrower’s income that goes to pay bills. 

Rate Lock: 
When a lender locks in a rate, it constitutes a guarantee that the interest rate will not change for a set period of time while the purchase of a home is finalized. Rate locks will expire if closing takes longer than anticipated, but they can be extended, generally for an additional fee. 

Refinancing:
The process of replacing an existing mortgage with a new one, often to secure a lower interest rate or change the terms of the loan.

Underwriting: 
The process by which lenders assess the risk and eligibility of a borrower, determining whether to approve or deny a mortgage application.