Whether it's your first time buying a home or you're a seasoned veteran, obtaining a mortgage can be a tricky process. There are so many options, and it may feel like too many hoops to jump through. That's why we've created a list of essential terms that bankers and brokers may use when you ask about a mortgage. 

First, you need to understand the difference between a broker, banker, and lender:

Mortgage Brokers/Bankers

Mortgage brokers are licensed originators representing multiple lenders who work as intermediaries to secure a mortgage for a borrower.

Mortgage bankers originate and fund the loan with the funds of the lender they work for, but immediately sell the loan to another lender, an investor, or directly to Fannie Mae or Freddie Mac.

Both mortgage bankers and brokers help the borrower through the mortgage application process. Then, they work with the lender who funds the loan. 

Each banker and/or broker has different fees associated with their business, so be sure to understand all of the costs involved. Some charge up-front fees, while others get paid at closing. Either way, you should do your research and understand what you'll owe to the broker/banker when you apply for the mortgage. 

Pre-Approval

Getting pre-approved for a loan has several benefits. Some homeowners want to see pre-approval before you make a formal offer on the house. Want to talk to a professional about getting pre-approved?

Move quickly

Especially when the market is crowded, having a pre-approval when others don't can make your offer stand out. It means that you can move quickly through the buying process, and the seller can get rid of their house faster. Some homeowners even require pre-approval before they consider your offer.  

Negotiating power

The idea that you're ready to buy the house can give you some leverage in the negotiating process. Your offer will have weight because they know you're serious about buying the home. 

Peace of mind

Knowing you can afford to buy the home is a great feeling. Getting pre-approved for a certain amount will give you peace of mind, so you don't feel guilty about the price of the home. 

Rate

When you hear the Mortgage Loan Officer (MLO) talk about the rate, they're referring to the interest rate associated with the loan. The interest rate is the additional percentage added to the mortgage as a result of borrowing the money. This serves as an incentive to pay the loan back on time. 

Two typical mortgage rates are adjustable-rate and fixed-rate. Adjustable-rate (ARM) means the rate will increase as the loan approaches the end. Fixed-rate, as the name suggests, means your rate stays the same through the life of the loan. We recommend choosing a fixed-rate, so you know your monthly expenses. However, an adjustable-rate might be useful in some circumstances. If you want to talk to a mortgage professional, visit hometraq.com for more info. 

Term

The term is the amount of time, or "life" of the loan. A longer-term will typically allow for lower monthly payments. However, interest is usually higher for longer terms as well. Paying more in interest means you build up equity slower. A shorter-term will allow a lower rate and faster equity. 

Points

Discount points represent the upfront payments of interest to the lender. The lower the interest rate, the higher the discount points, and vice versa. Each point is 1 percent of the loan amount. 

Origination points are charged to offset the administrative cost of processing and originating your loan. They can also include a document preparation or underwriting fee.

Down Payment

A down payment is an amount you pay in cash at signing. A larger down payment means less borrowed from a loan. A 20% down payment avoids the Private Mortgage Insurance cost (see below). However, the national average for down payments is around 10 percent, and some loans require as little as 3 to 5 percent. 

Mortgage Insurance 

Mortgage Insurance, also called MI, private MI or PMI, is generally required on mortgages with down payments less than 20 percent of the property value. MI reduces the amount a credit union loses if members do not repay their mortgage. 

Without the protection of MI, credit unions typically require a member to make a down payment of at least 20 percent of a home's purchase price, which can mean years of saving for some members. 

This large down payment assures the credit union that the member is committed to the investment and will try to meet the obligation of monthly mortgage payments to protect the investment.

A low down payment also allows members to purchase more home than they might otherwise be able to afford.

FHA vs. Conventional

FHA loans are guaranteed by the Federal Housing Administration and extend credit to homeowners, particularly those who have limited down payment funds and lower credit scores.

Conventional loans are typically guaranteed or insured (when required) by private mortgage insurers. Conventional loans are purchased by Fannie Mae or Freddie Mac.

Conventional Loans

• Generally require a 5 percent down payment,
  with specific programs allowing as little as 3
  percent down.
• If MI is required, private Ml companies offer
  cancelable and flexible monthly or single
  premium options.
• Private Ml on a conventional loan is typically less
  expensive than the Ml on a FHA loan.
• Typically, a minimum credit score of 620 is
  required.
• Often have quicker processing time than FHA
  loans.
• Generally have a lower loan-to-value (LTV) ratio
  than FHA loans.

FHA Loans

• Require a 3.5 percent down payment, and most
  borrowers have an FHA insurance premium
  payment for the life of the loan. Additionally, FHA
  loans have both an upfront payment (which may
  be financed into the loan amount) and monthly
  premium payments.
• Lower maximum loan limits may be imposed
  (compared to conventional).
• May allow lower minimum required credit score.