Your interest rate is used to calculate your monthly payments. The APR (Annual Percentage Rate) is the total yearly cost of a mortgage, which includes the base interest rate, mortgage insurance, loan origination fees and other expenses such as property taxes, and stated as the percentage of the loan amount.

The pre-approval process is much more complete than pre-qualification. For pre-qualification, the loan officer asks you a few questions and provides you with a pre-qual letter. Pre-approval includes all the steps of a full approval, except for the appraisal and title search. Pre-approval can put you in a better negotiating position, much like a cash buyer.

A rate lock is a contractual agreement between the lender and buyer. There are four components to a rate lock: loan program, interest rate, points, and the length of the lock.

A Loan Estimate is a three-page form that you receive after applying for a mortgage.

Private Mortgage Insurance (PMI) provides your lender with a way to recoup its investment if you are unable to repay your loan. PMI is usually required when the mortgage amount is higher than 80% of the home’s value. That means that if you buy a home with a down payment of less than 20%, you will probably have to pay for PMI.

Most mortgage loans have either a fixed interest rate or an adjustable interest rate. With a fixed-rate mortgage, the interest rate never changes and your payments remain stable throughout the life of your loan. With an adjustable-rate mortgage (ARM), the interest rate changes at regular intervals — usually once every year — based on a formula that uses a market index. For most ARM options, rate adjustments begin after an initial period — usually between three months and ten years — during which the rate is fixed. A fixed rate is usually recommended if you plan to stay in your home for the long-term and are buying at a time when rates are relatively low. An ARM is usually recommended if you plan to move before the rate adjustments begin, or if you are buying when rates are relatively high.

Most programs for first-time buyers allow you to buy a home if you haven’t had any ownership in a home for the last three years.

These guidelines are regularly being re-evaluated and changed. Contact First Colony Mortgage for further details.