Getting a mortgage loan can be confusing even for people who have previously had mortgages, but it can be even more confusing for someone who is getting their first mortgage. If you are in the position where you are ready to get your first mortgage loan, here are several terms that you should understand beforehand to help you understand the process and the way mortgages work.
Preapproval vs. prequalification
If you are trying to buy a house, you probably already hired a real estate agent to help guide you, and this agent probably asked you if you are preapproved. When your agent asked you this, he or she is wondering if you went through the mortgage-lending process of getting preapproved, which means a lender has reviewed all your information and told you that you are eligible for a loan. This does not mean that you might not experience trouble getting an actual loan, but it does mean that you appear to qualify. This is an essential part of the home-buying process, but it is important to understand that getting preapproved is not equivalent to getting prequalified.
Prequalification is a very general process that only involves a simple phone call to a lender. The lender will ask a few questions and will then tell you if you prequalify for a loan. Prequalifying does not evaluate all of your actual financial and credit information, so, therefore, it is not as much of a guarantee as getting preapproved.
The other important term you will need to understand as you begin the loan process is escrow. Escrow is a normal part of the home closing process and mortgage loans. Escrow is a term that refers to an account where your lender stores money for you on your behalf. The money stored in this account is money you pay to the lender, and you may pay this on a monthly basis. The money accumulates in this escrow account over time, and your lender will use it to pay specific expenses related to your house. The main two expenses paid out of escrow are property taxes and homeowner's insurance premiums.
Having an escrow account is often a requirement by lenders, but it is also something that is beneficial for you, as it will help you save money for these big expenses you must pay each year.
There are a lot of additional terms and parts of mortgages you might have questions about. If so, contact a mortgage lender to speak to someone about the questions you have. Look for first-time home buying services like Cornerstone Residential Mortgage for more assistance.