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TREY GAFFNEY
EXIT RIGHT REALTY
8730-16 CHERRY LN
LAUREL, MD 20707
Office: (301)362-4500
Fax: (301)362-4551

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All Rights Reserved.

 

Home Financing Choices

Preapproval vs. Prequalification

You will have a greatly improved negotiation position when you are preapproved for a mortgage. Sellers are more apt to negotiate with someone who already has a mortgage approval in hand. The preapproval letter lets the seller know they are working with a serious buyer. A preapproved buyer can also close a property more quickly—another major consideration for a motivated seller. Obtaining a preapproved mortgage is essential in a "sellers' market" or where supply is limited.

Preapproval uses basic information as well as electronic credit reporting. It is a true mortgage committment. Which means a committment to financing your home and an indication of the total mortgage amount available to you. Mortgage lenders can help you through the preapproval process. In most cases, there is no charge for this service. Ask your Sales Associate for more information.

Prequalification, on the other hand, is not a full mortgage approval, but an estimate of what you can afford. When you prequalify for a mortgage, the lender collects the basic information regarding your income, monthly debts, credit history and assets, and then uses this information to calculate an estimated mortgage amount.

Fixed Rate Mortgage

The 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 20 years—so the interest and principal 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 Mortgage (ARM)

The 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 lifetime 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.