Searching for and buying a home is an exciting process, but like anything new, it can be overwhelming. Homeownership is a big step, and the time and resources required can seem confusing if you're unsure of mortgage terms and processes.

If you are looking to buy a home, don't worry! We put together 10 mortgage terms to help you have a stress-free experience.

Pre-approval

An evaluation and statement from your lender that they will lend you up to a certain amount. It shows the seller you have the financial means to back up your offer. A pre-approval does not guarantee a mortgage.

Down Payment

The money a buyer contributes out of pocket to purchase a home. Combined with your mortgage loan, it will fulfill the purchase price of your new home. The required down payment amount varies depending on the mortgage program.

Principal

The original amount of money you borrowed from the lender for your mortgage loan. This is one of the biggest determining factors of your monthly payment, and the balance will decrease with each payment made.

Interest Rate

The price you pay to borrow money from a lender. It is charged as a percentage of your principal loan amount and is rolled into your monthly payment. Interest rates vary depending on your financial situation and the financial market's current state.

Amortization

How mortgage loan payments are applied to your principal balance versus interest. Your monthly payment will remain relatively stable throughout the life of the loan, but the percentage that goes toward your principal and interest changes over time. This ratio will gradually shift as time goes on.

Private Mortgage Insurance (PMI)

Coverage you must have if you put down less than 20% of your principal loan amount. PMI protects lenders from any losses if the borrower halts payment. PMI can eventually be removed in some programs.

Fixed-Rate Mortgage 

A popular loan product in which your interest rates remain the same throughout the life of the loan. The terms are normally between 10 and 30 years, making it a great option for those who want to lock in their interest rate and monthly payment.

Adjustable-Rate Mortgage (ARM)

A loan product that comes with an introductory interest rate for a set period of time. After that, the interest rate will reset periodically with the market throughout the remainder of the loan's life, fluctuating your loan payment.

Closing Costs

Expenses beyond the down payment one or both parties will pay at closing. They vary and cover expenses such as loan origination fees, title fees, escrow funds and other misc. items. Details of your closing costs will be sent in a Loan Estimate beforehand to ensure you are prepared for these costs.

Escrow 

A legal arrangement in which a neutral third party holds and transfers funds or property until an agreement is met. It protects both the buyer and seller during the home-buying process. An escrow account will normally also hold funds for property taxes and homeowners' insurance.

We covered some of the most common mortgage terms, but that is just the tip of the iceberg regarding home-buying. If you ever feel confused, your loan officer is a great resource. For a self-guided approach, there is reputable free educational content online.

A home is your biggest asset. A Vibe Home Loan is the key to making the most of it. Contact our lending department at 248-735-9500 to apply. Happy house hunting!