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Preapproval vs. PrequalificationWhat could be more comforting than the peace of mind that goes with knowing your mortgage is fully approved? You will have a greatly improved negotiating position when you are pre-approved for a mortgage. Sellers are more apt to negotiate with someone who already has a mortgage approval in hand. The pre-approval letter lets the seller know they are working with a serious buyer. A pre-approved buyer can also close on a property more quickly -- another major consideration for a motivated seller. Obtaining a pre-approved mortgage is essential in a "seller's market" or where supply is limited. Pre-approval uses basic information as well as electronic credit reporting. It is a true mortgage commitment, which means a commitment to financing your home and an indication of the total mortgage amount available to you. Prequalification, on the other hand, is no a full mortgage approval, but an estimate of what you can afford. When you pre-qualify for a mortgage, the lender collects basic information regarding your income, monthly debts, credit history and assets, and then uses this information to calculate an estimated mortgage amount. Fixed Rate MortgageThe fixed rate mortgage is a traditional method of financing a home. The interest rate stays the same for the entire term of the loan -- usually 15 or 30 years -- so the interest and principle portions of your monthly payment remain the same. Your payments are stable and predictable, but initial interest rates tend to be higher on a fixed rate mortgage than on adjustable rate loans. Many fixed rate mortgages cannot be assumed by a subsequent buyer. Adjustable Rate MortgageThe interest on an adjustable rate mortgage is linked to a financial index, such as a Treasury security, so your monthly payments can vary over the life of the loan -- usually 25 to 30 years. Most adjustable rate mortgages have a lifetime cap on the interest rate increase to protect the borrower. The lower initial payments on ARMs make it easier for buyers to qualify. Some ARMs may be converted to fixed rate mortgages at specified times, usually within the first five years. Other Types of Mortgages |
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| Access | Rural Gold ACCESS program. A down payment assistance program administered by the California Rural Home Mortgage Finance Authority. Eligible buyers can get an "Access" 2nd loan, used in conjunction with a FHA or Conventional 1st loan. The loan funds are to be used towards the buyers' down payment and closing costs. Liberal income limits and no "First Time Home Buyer" requirement. Available only through approved lenders. |
| Buy-Down Loan | A fixed rate loan that is amortized over 30 years but becomes due and payable at the end of a certain term. May be extendible or may roll over into another type of loan. |
| CHFA | California Housing Finance Agency. Receives funds from the sale of "tax exempt" bonds, which are allocated to specific use (primarily "First Time Home Buyers"), subject to Federal Tax Law. Eligibility is subject to purchase price and income limits, which vary according to whether property is "new" or "existing" and whether it is located in "target areas". Available only through CHFA approved lenders & offers eligible buyers lower interest rates, controlled fees, etc. |
| Community Homebuyer's Program | A fixed rate loan for first time buyers with a low down payment, usually 3-5%, no cash reserve requirement and easier qualifying rations. Subject to borrower meeting income limits and attendance of a four hour training course. |
| Conventional Loan | Conventional loans are sometime more lenient with the appraisal and condition of the property. Homes purchased above the FHA loan limit should consider conventional financing. |
| FHA Loans | FHA loans are insured by the Federal Housing Administration under H.U.D. They offer a low down payment and are easier to qualify for than conventional loans. |
| Graduated Payment Mortgage | A fixed rate loan that has payments starting lower than the standard fixed rate loan, which then increases by a predetermined amount each year for a set number of years. |
| VA Loan | VA loans are guaranteed by the Veterans Administration. A veteran must have served 180 days active service. The maximum VA loan is currently $184,500 with no down payment. |
