Do you know “Lender Lingo”?
Years ago my niche market was first time buyers, Now, they have gotten married, have babies and many of them are my move up buyers. I still have a large base of first timers. I love them, they soak up all of the information I give to them. My buyers know what is going on during their transaction because I have educated them as much as I possibly can.
When my buyers come to see me, I do a Buyer Listing Presentation , where I try to touch on many of the main details they are about to encounter. Part of this is talking about the financing. Now, I don’t do a final prequal, I leave that up to the actual loan officer, but I try to prepare them for some of the “lingo”. I find that most loan officers throw words like ARM, Conforming, Non Conforming, FHA, VA, Purchase Money etc around like everyone just knows what that means? I am not picking on my lender friends, I am sure you could turn this around on us agents. I think we get used to our own lingo, we all forget the public might be saying, Huh? Don’t worry, I will get to the agents shortly.
It would be like my Biopharma husband explaining the breakdown of proteins and cells to me in his work, I just get that deer in the headlights look. it is giving me a headache just thinking about that.
Anyway, I thought I would address some of the most popular terms I hear with my clients from lenders to clarify, in layman’s terms,in English, for the first time home buyer. These are basic terms and you should consult a loan professional for actual rates and terms of any loan you are considering when purchasing a home.
Note- This is the document you will sign when settling on your home that is the agreement between you and the mortgage company of your exact interest rate, what kind of loan you are getting. It spells everything out in specific detail of what you will be obligated to pay for your home.
Fixed Rate This means your interest rate will stay the same through out the term of your loan.
ARM- Adjustable Rate Mortgage. This means that your interest rate is set to be the same for a short period of time. If you chose a 5 year ARM, for example, the rate will stay the same for 5 years and then at the anniversary, it will adjust based on what the Caps are. After it adjusts in 5 years, your payment can change monthly, semi annually or annually. Make sure you read the note for the exact terms at settlement.
Caps - the maximum your ARM can change when it is time for the adjustment. For example, if you have a Fannie Mae loan, you may see 2/6 caps on your note . This means if your interest rate starts at 6% and at the time of adjustment, it cannot go any higher, or lower, than 2% at a time. The lowest it could go is 4% and the highest it could go is 8%. If you never refinanced this loan, the highest interest rate you would have is 12%. There is probably a minimum interest rate that the loan would be.
Conforming- This is a loan limit of $417,000, currently- you may see that this amount is about to be raised in higher priced areas- we are still waiting for a final number. When you are borrowing money the rates are typically lower on a loan under the conforming limit.
Non Conforming- This is a loan amount above $417,000. These loans are also called Jumbo loans. The rates are typically higher on the higher limits. This is why it is important for the Conforming limit to be raised in the higher priced markets of the country. This will make it easier for the consumer to have a cheaper mortgage payment.
FHA - Federal Housing Administration. These are loans made that are insured by the Federal Government. These loans are great for first time home buyers, although you do not have to be a first time home buyer to qualify. There is a minimum down payment and the rules, or underwriting guidelines, are relatively easy to work with.
VA Veterans Administration. You must qualify by having served in the Military for specified lengths of time to qualify. See the VA’s website for details. This program is great for veterans with liberal guidelines and 100% financing programs.
GFE Good Faith Estimate. Your lender, I actually do this as an agent - I know some agents don’t do this-, is an estimate of how much cash you will need to bring to settlement to purchase your home. It will also include the estimate of your monthly payment.
These are very basic terms in the loan world. I hope this helps some of you that are new at the home buying process. It is not difficult at all and always remember, if you are not sure what the loan officer is talking about, stop ask again and make sure they explain it to you until you understand. It is a lot of money, more importantly it is your money, and it is important that you understand.
I will tell you I am a real estate agent, not a loan officer and find these are some of the more popular terms I hear with my clients. You should always speak to a qualified lender to clarify and confirm this information. I feel this if very important- they are handling one of your biggest financial decisions of your life.
I wish you luck in your endeavor of home ownership!!
For more information contact Audrey June-Forshey Remax Realty Group
301-921-2672
www.Audreyjune.com
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