Before you start hunting for the best mortgage, you’re going to want to take a step back and learn some of the terminology. A combo-VRM with a 20% balloon payment at 3/1 might be the best thing for you, if you know what any of that means! Here we’re going to go over some of the terminology you’ll find with mortgages so you can have a better understanding of what you’re walking into. This is just a brief description of terms and in no way is meant to be a comprehensive list.
Balloon – also known as the surprise; a balloon payment can be due at the end of a loan, usually called a balloon because it expands beyond its regular size. So if your monthly payment is $150 your balloon payment could be $6000 to close out your mortgage.
Bridge Loans – These bridge the gap in financing until you’re liquid. There are rules for bridge loans; you’ll need to be in the process of selling your current home and buying a new one to qualify.
Closing Costs – The fees you pay when you buy your home. Taxes, legal fees, title insurance and search, all this is rolled into that.
Combination Mortgage/Combo – A combo mortgage is a mortgage that starts out as a fixed or variable rate mortgage and transitions into the other after a certain amount of time.
Down Payment – This can be anywhere between 5% and 20% (or more) of the purchase price of the home. The bigger the down payment the more you save.
EMD or Earnest Money Deposit – A way to sway a buyer to take your bid. Akin to a bribe, but more of a gift.
Escrow – Money held by a 3rd party, fraud protection. The length of your escrow will usually depend on the amount of money involved.
Fixed Rate Mortgage – A mortgage that stays the same throughout the life of your loan, with a few exceptions. Best for long term buyers.
Jumbo Loan – A large loan, usually over $500,000. Jumbo loans can be packaged to save you money, but talk to a mortgage broker to know for sure.
Private Mortgage Insurance – Private mortgage insurance covers the lender in the case that you default; they’ll still be able to collect, a tax on people with no credit or bad credit.
Upside Down – Being upside down on your mortgage, or “underwater” means that you owe more than your home is worth. This happens when you get behind on payments or end up with a mortgage that isn’t well suited for your financial situation.
VRM – A Variable Rate Mortgage; these can be both good and bad. Depending on how it’s structured these are usually good for borrowers that are seeking a short term loan that they can repay quickly, taking advantage of low interest rates.
It’s important to work with a broker before moving forward; the last thing you want to do is end up with a mortgage that just isn’t right for you.