The home financing process involves a lot of new terminologies. Let's break down some common words and phrases.
Adjustable-Rate Mortgage (ARM)
These are mortgages where the interest rates can fluctuate based on what's happening in the greater economic landscape. Most ARMs allow for an annual rate change based on the one-year Treasury bill index.
Mortgage appraisals help determine the fair market value of a property by comparing it to nearby homes that have sold recently. The VA appraisal also aims to help ensure veterans are purchasing homes that are safe, structurally sound and sanitary. To that end, VA appraisers also look at a broad range of property condition guidelines, known as the Minimum Property Requirements. Lenders can also have their own property condition guidelines.
The VA appraisal is not as in-depth as a home inspection and should not be considered a substitute for one. A home inspection is also recommended, as it can provide a more thorough look at a property’s structural integrity and major systems.
Annual Percentage Rate (APR)
This rate reflects the total cost of borrowing money, including the interest rate and other costs built into the loan amount. The interest rate and the APR are typically different, and veterans should look at both when comparing VA lenders. Two loans can have similar interest rates, but the one with a higher APR will cost more. Buyers should also understand that lenders can calculate this figure differently.
Automated Underwriting System (AUS)
Mortgage lenders often use a computer system to help immediately assess a borrower's suitability for a home loan. These automated underwriting systems evaluate a borrower's credit, finances and more. Getting approval from one of these systems can help veterans move through the loan process faster and with more flexible requirements. Unlike the USDA loan program, the VA loan program does not currently have its own automated underwriting system.
Basic Allowance For Housing (BAH)
Basic Allowance for Housing (BAH) is a monthly allowance to help qualified active duty service members cover housing expenses. Mortgage lenders can count BAH as effective income toward qualifying for a mortgage. Housing allowances can help defray or entirely cover monthly mortgage payments.
This is the real estate agent who represents the homebuyer.