Getting a mortgage loan is an important step in buying a house, but it can also be a confusing process if you have never gone through it before. Because of this, it is important to take the time to understand some important terms and concepts of the mortgage loan process before you apply for a loan. Here are some of the top things you should know as you prepare to get a mortgage loan.

Fixed-rate vs adjustable rate

An important difference in loan types is the way the interest rate works, and there are two main types of interest rates you can get with a mortgage. The first type is often preferred as it is called a fixed-rate interest rate. It is preferred because it offers an interest rate that will never change, and it protects a person from rising interest rate hikes that could potentially occur if something in the economy drastically changes.

The other type is an adjustable rate, which is a type of mortgage that has an interest rate that is subject to change after a certain amount of time passes. This could be five years from now or longer, and you will not know what the rate will change to when the time comes.


The second thing to understand as you prepare to apply for a mortgage is the importance of ratios. The lender you choose will calculate several different ratios as one of the ways they determine your eligibility for a mortgage loan. The first ratio you should know about is called the debt-to-income (DTI) ratio. This basically compares your expenses to your income, and lenders prefer seeing ratios that are 36% or lower. A second important ratio to understand is called the loan-to-value (LTV) ratio, which determines how much money you will need for the down payment on the loan.

Conforming vs. non-conforming loans

Another key term to understand involves the meaning of a conforming loan versus a non-conforming loan. Conforming loans are the most popular type of loan and must go through a process known as underwriting. The applicant and the house must meet certain conditions and criteria. A loan that is non-conforming does not have to meet these conditions. Contact a provider of conforming or non-conforming loan programs in your area today to learn more.


One final thing to understand about the mortgage process is something called underwriting. Underwriting is one of the final steps your loan will go through before you can actually close on a house, and this process is used to verify all the information about your finances and about the house you want to buy.

These are four things you will hear about during the mortgage loan application process and understanding what they are will help you have a better understanding of the process. To apply or learn more about loans, talk to a mortgage lender today.