Explanation of Terms Continued

Credit

Credit in the mortgage business refers to the borrower's debt-payment history. Credit is one of the primary factors mortgage lenders take into account when determining whether they'll lend money to a particular borrower. Credit is primarily determined by a current credit report, but some mortgage lenders will also take alternate forms of credit into consideration when considering a borrower for approval, such as utility or rent payment history. In general, borrowers with high credit can qualify for lower interest rates and higher loan amounts than borrowers with credit issues.

Docs

Docs are the final loan documents that spell out the exact terms of the loan and are signed at closing. Docs are typically signed at a title company in front of a notary public, and once they've been signed the loan can close and the loan's funds can be disbursed.

Down Payment

A down payment is a percentage of the purchase price of a home that a borrower pays to the mortgage lender up front together with the loan's closing costs. Most mortgage loans require the borrower to make a down payment of at least 3% to 5% of the purchase price, and the mortgage loan then covers the rest of the purchase price.

However, there are many zero down mortgage loan programs available today that do not require a down payment from the borrower. Zero down mortgage loans typically have sricter qualifying criteria than regular mortgage loans that require a down payment.

Equity

Equity is the difference between what a home is worth and how much a borrower owes on it. Equity can be either a postive or negative amount. If a borrower has positive equity in a home, then the home is worth more than they owe on it. If a borrower has negative equity in a home, then the borrower owes more on the home than it is worth.

First Time Home Buyer Mortgage Loan

A first time home buyer mortgage loan is a specialized mortgage loan designed to make it easier for first time home buyers to purchase a home. A first time home buyer mortgage loan can have a fixed interest rate, an adjustable interest rate or be interest only. The factor all first time home buyer mortgage loans have in common is that they are designed to be easy to qualify for. Typically, they accomplish this by having easier credit criteria or lower down payment requirements than general loans.

Interest Only Mortgage Loan

An interest only mortgage loan is a mortgage loan that allows you to make payments on just the interest (instead of both principal and interest) for a fixed period of time. Because you're only paying on the loan's interest, interest only mortgage loans are typically the cheapest way to get into a home, or the best way to afford the most expensive home.

The interest only period of an interest only mortgage loan is typically 1, 3, 5, 7, 10 or 15 years. After this period is over the loan's principal and interest are amortized for the rest of the loan's life, so monthly payments will go towards both principal and interest (and will be higher than they were during the loan's interest only period).

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