Ever hear of FHA? How about conventional? What about escrow? Mortgages have a language all their own, and it can be rather overwhelming, especially if you@re new to the home buying process. Let@s define some key terms and clear up misconceptions that many individuals have about purchasing a home!FAQs and terms.What is PMI?PMI stands for Private Mortgage Insurance. This is money you pay to protect the lender in the event of a loan default (typically only charged when the loan-to-value is greater than 80%).What is the difference between a pre-approval and a prequalification?A pre-approval is a written evaluation based on your application that determines your specific loan amount. A prequalification tends to be less rigorous and less accurate, so we recommend a preapproval.What is PITI?Principal + Interest + Taxes + Insurance = the four components of your monthly mortgage payment.What is an adjustable rate mortgage (ARM)?An ARM is a home loan with an interest rate that varies during the life of the loan. With interest rates so low, we do not currently recommend an ARM for anyone.What is an annual percentage rate (APR)?APR is the total yearly cost of a mortgage. It includes the base interest rate, points, and any other add-on loan fees and costs.What is an application fee?An application fee is the cost to apply for a loan, including a credit report and property appraisal.What is an appraisal?An appraisal is a written estimate of the value of a property.What does appraised value mean?The appraised value is a professional evaluation of a property@s fair market value.What does the term closing mean?Closing is the transfer of ownership of the property from the seller to the buyer, or the settlement of refinance.What are closing costs?Closing costs are any fees above the price of the property incurred by buyers and sellers during closing.What is a co-signer?A co-signer is someone with no ownership of the property who is responsible for paying back a loan.What exactly is a credit report?A credit report is a detailed analysis of your credit history prepared by a credit bureau.What does debt-to-income (DTI) mean?DTI is the percentage that compares your monthly debt to your monthly income.What is a down payment?A down payment is the cash you pay to make up the difference between the price of the home and the loan amount.Can you explain home equity?Equity is the difference between a property@s fair market value and the amount still owed on the mortgage.What is escrow?Escrow is money or another item of value held by a third party that will be delivered upon completion of a condition.Who are Fannie Mae and Freddie Mac?These are government-sponsored enterprises (GSEs) that buy home loans from lenders.What is a FICO@ score?This is the nation@s most widely-used measure of credit risk, calculated from the information on your credit report. (FICO stands for Fair, Isaac and Company, the data analytics firm that created the system.)What is a fixed-rate mortgage?A home loan with an interest rate that stays the same throughout the life of the loan.What is the loan-to-value (LTV) ratio?The amount of your mortgage divided by the appraised value of the property.What is an origination fee?A fee you pay to the lender for processing a loan application.What are points?Points are a type of prepaid interest you can pay to cover loan costs or lower your rate.What is principal?Principal is the amount of money borrowed or remaining unpaid on your loan.What is a rate lock?A rate lock is a promise from your lender to hold a specific interest rate and points for specific time period.What does it mean to refinance?When you refinance, you pay off one mortgage and take out a new one, which typically has a lower rate or shorter term.What does underwriting mean?Underwriting means evaluating a loan application to determine the risk involved to the lender.Process.What documents do I need to get pre-approved?2 years@ tax returns (business and personal).2 years W-2@s.30 days paycheck stubs (must be 30 consecutive days).2 months@ bank statements (for all asset accounts).Retirement statements.Divorce decree (if within last 7 years).Child support documentation (if obligated to pay).Proof of sale (current or previous home).How does my income affect my ability to qualify?A 2 year continuous employment history required to qualify (please inquire for exceptions).If you@re self-employed or a commissioned employee, a 2 year history as evidenced by 2 years@ tax returns @ average income.Bonus income requires a 2 year history @ average bonusInterest, dividends, and retirement income require a 2 year history @ average income as reported to IRS.What about assets?We will need 2 months@ bank statements for all asset accounts.All large deposits must be sourcedIf you are receiving gift funds (from a parent, for example) to help toward closing costs, we require a gift letter, documentation in the donor@s account, documented transfer confirmation and the documented amount in your account.Will my credit report play a role in my ability to get approved?Yes! Check out our blog about credit by clicking here. You@ll have to address recent inquiries (if applicable), judgements must be paid and cleared off the public record, and you must have three trade lines (accounts) for a 12 month period.Do you need 20% down to purchase a home?No! There are several loan options with lower down payment requirements. State housing agency programs and other gifts and grants may also be available to help with your down payment and closing costs. Check out our blog here about some of those programs.Do you need perfect credit to purchase a home?No! One of the best loan programs for someone with a lower credit score is an FHA home loan. You only need a 580 credit score or higher to qualify for a loan, the minimum down payment is just 3.5%!Loan types.Conventional loan details:Down payment as low as 3% with HomePossible@.Loan terms from 10-30 years.Fixed and adjustable rates available.FHA loan details:Mortgage insured by the Federal Housing Administration (FHA).Only 3.5% down required.Loan terms from 10-30 years.Fixed and adjustable rates available.Credit scores down to 580 accepted, co-applicants allowed.Seller can pay up to 6% of the sale price towards closing costs.FHA 203(k) available to rehab homes.VA loan details:A mortgage for military members and Veterans, guaranteed by the Department of Veteran Affairs (VA).No down payment or mortgage insurance for qualifying military veterans.Credit scores down to 580 accepted.Seller can pay up to 4% of the sale price toward closing costs (total concessions may exceed 4% depending on type).Limited closing costs, no early payoff penalty, funding fee waived for disabled veterans (@1%).Benefits can be reused for future VA loans.USDA loan details:A mortgage for homes in rural areas, small towns, and some suburbs, insured by the Department of Agriculture (USDA).No down payment required, closing costs can be financed into the loan amount.30-year fixed-rate mortgage with no max loan amount (based on ability to qualify).Up to 6% seller concessions allowed.Single-family homes, townhomes, and manufactured homes eligible.Lower credit scores accepted (must meet property eligibility and income requirements).We know this is a lot of information. That@s why we@re here to help! If you have any questions or are seeking further clarification regarding any of these terms, please reach out.@