If you want to purchase a home, and apply for a mortgage, you are going to run into a lot of terms that you may not be familiar with. The lending world has a lot of unique terms that are helpful to understand when you want to apply for a loan. Here are a few terms that will help you navigate the loan world better:
When getting a mortgage, someone may ask you if you pre-qualify for a mortgage. Pre-qualification is a quick process that is based on a verbal assessment of your assets, income, and employment. Based on information that you provide, with no verification, a bank can tell you if you are a likely candidate to qualify for a loan.
Pre-approval is a little different than pre-qualifying for a loan. With pre-approval, you have actually provided evidence to back-up your claims, the bank just has not processed all that information yet. Based on what you told the bank, and the documents you submitted, you are pre-approved pending the full approval process, where the bank will review and verify your information in more detail.
When you are actually approved for a loan, that means that you have submitted all the necessary documentation in order for the bank to determine that they would lend to you. You will also know at this point how much the bank will lend to you, allowing you to set your maximum budget.
The interest rate is the rate that you agree to pay the bank for granting you a loan. Having a better credit score can help you qualify for a lower interest rate. This is the extra amount that you will pay back on top of the principle amount that you are being loaned. This is how banks make money on loans.
Annual Percentage Rate or APR
Your annual percentage rate is a combination of your interest rate as well as any financing charges that you owe your bank. Your APR is a combination of how much in interest and financing charges that you will owe your bank on a yearly basis.
These are just a few of the terms that you will encounter when applying for a loan. When you encounter a term you don't know the exact meaning of, write it down and take the time to ask about the term or look it up yourself later. You are going to encounter a lot of terminology that you don't usually encounter, so don't be afraid to ask questions. Applying for a loan is a complicated process with long-term implications for you, so you want to make sure that you understand fully the agreement you are entering into. For more information, contact a business such as Mortgaged LA.Share