Is buying a home one of your goals for the new year? Maybe you’re a millionaire that has mounds of money to purchase a home with cash, but most us will have to purchase property with a mortgage loan. What exactly is a mortgage? It’s basically when the property you’re purchasing is used as collateral against the loan you’re taking out. In other words, you sign a note saying you promise to pay back the lender. If you don’t pay your mortgage, well, they take away your property, aka foreclosure. There’s you’re first lesson! Here is some other helpful mortgage vocab from our friend Tom Tomasian from Fairway:
Pre-qualification vs. Pre-approval
Some lenders will “pre-qualify” you for a new home loan. This is basically taking a verbal application based on your credit, income, down payment, etc. While this information is useful, and it is not a great way to shop for a new home loan. A true “pre-approval” supports all this information with actual documentation. Verifying the borrower’s information ahead of time is far more beneficial and will allow you and your realtors to shop with confidence. At Fairway Independent Mortgage Corp, we verify all documents before issuing a valid Preapproval Letter.
Adjustable vs. Fixed
An Adjustable Rate Mortgage (ARM) is a rate that is fixed for a certain period of time, most commonly 5, 7, or 10 years and based on a 30 year amortization schedule. The initial rate is usually set significantly lower than a Fixed Rate mortgage. When the fixed period ends, the new rate is calculated by adding the margin (e.g. 2.25) to the given index specified (e.g LIBOR). When this rate adjusts, your interest rate and payment adjusts either upward or downward. A Fixed Rate mortgage is an interest rate that is fixed for the life of the loan, based on a set number of years, most commonly the 30 year period. Both loans have advantages for given scenarios, but the 30 year Fixed Rate mortgage is the general loan of choice in this market.
Formally know as Good Faith Estimate, Mortgage companies now use a ‘Loan Estimate’ or what we call a Loan Estimate or L.E. The L.E. includes the basic hard costs associated with the new mortgage. These costs are typically made up of the bank or lender fees, the title, attorney and recording fees, and the prepaid items, which include your property taxes and homeowner’s insurance. As the loan progresses, these costs are confirmed with the initial Closing Disclosure (CD) and later the final CD.
Here’s the scoop on Tom – and look for a new monthly blog from him too!
Tom Tomasian is a Senior Loan Officer at Fairway Independent Mortgage in the South Boston office. A Dorchester native now residing in Southie, he attended BC High and graduated from Northeastern University with degrees in finance and marketing. Before becoming a loan officer in 2005, Tom worked on the New York Stock Exchange and in financial services.
With over 10 years of experience, he is an expert at helping his clients find home loans that will allow them to meet all their financial goals. Tom specializes in a wide range of loan types, from first-time homebuyer and VA products to condo and jumbo loans.
When he’s not running to meetings, you can find Tom running laps around Castle Island. A three-time Boston Marathon qualifier and finisher, he also races to raise money for local charities. Follow Tom on Facebook!
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