Published: May 15, 2008 EST

(ARA) - "The benchmark 30-year fixed-rate mortgage slipped to its lowest point (5.6 percent) since October 2004." -- USA Today, February 3, 2005 What Does it All Mean?

Anyone purchasing a home knows that the process of acquiring a home loan can be overwhelming. Mortgage types, house prices, estimates, salaries, even finding a real estate agent all contribute to the confusion. Most people could do with some help interpreting the tips, terms, and definitions that will be bandied around during the home loan process.

Before You Take the Plunge

If you feel ready to purchase a home, it's probably a good idea to examine your recorded financial status (credit history). This takes into account previous financial applications and transactions that you have completed or attempted. It will be one of the driving factors in determining the type of home you can afford. Any of the major credit bureaus (Experian, TransUnion, and Equifax) can provide reports on your credit history. Ideally, you should be sure that your credit history is free of outdated or false information. In most cases, an inaccurate credit report can't be fixed overnight.

Home Appraisals and Inspections

Before you complete a home purchase, a lender will often ask for an appraisal of the property to determine its value. The national average for a standard residential property appraisal is around $350, but fees vary by region from approximately $250 to $500 for standard appraisal. This fee is usually split between the buyer and seller. Home inspection, which is different than an appraisal, may also be required. Home inspection can be done more cheaply depending on the property location and the experience of the inspector. The average cost is $100 per hour. Sometimes lenders charge a fee to apply for a home loan, pre-approval for a loan, or to run a credit report.  Finally, mortgage insurance may be necessary if you put down less than 20 percent of the purchase price.

Mortgage Calculators

Mortgage calculators offer an easy way to determine how much you can afford to pay for your home or loan. To use a mortgage calculator, you enter information about how much you want to borrow, the period over which you would like to repay the loan, the corresponding or prevailing interest rate, and the day you want to start repaying the loan. Using these numbers, the calculator automatically figures out your expected monthly mortgage payment. Bear in mind that in addition to the mortgage payment, you will have to pay homeowners insurance, title insurance, and property taxes. These charges are often added to your monthly payment and can add hundreds of dollars to your mortgage payment each month.

Money Matters

It's useful to know what the financial terms mean and how they relate to your home purchase before you start talking to potential lenders.

Common terms in use include:

* Adjustable Rate Mortgage (ARM): Adjustable rate mortgages are controlled by short-term interest rates set by the Federal Reserve Board. This rate fluctuates over the course of time. While adjustable rate mortgages typically start at a lower interest rate (which of course translates to a lower monthly payment), the interest rates and payments can fluctuate wildly depending on the state of the market.

* Annual Percentage Rate: A value calculated according to a government formula intended to reflect the true annual cost of borrowing, expressed as a percentage. It includes any fees or prepaid interest involved in obtaining a loan.

* Balloon Mortgage: A balloon mortgage offers lower interest rates up front with the provision that a large "balloon" payment will be made after, for example, five or ten years.

* Down Payment: The portion of the home purchase price that is paid in cash and is not part of the home loan.

* Equity: The difference between fair market value of a property and the amount that is still owed on its mortgage and other liens. "Negative" equity is when the property is worth less than the amount of the loan.

* Escrow: Money, property, a deed, or a bond placed into the custody of a third party (usually the Title Company) for delivery to a grantee (seller) only after specific conditions have been met.

* Fixed Rate Mortgage: These "traditional" loans have a fixed interest rate over the life of the home loan. Your monthly mortgage payment for interest and principal never changes, but your escrow expenses, such as property taxes and insurance, often will.

*  Hybrid ARM: Hybrid ARMs function much the same way as standard ARMs except that they let you lock into a rate for up to 10 years before it adjusts to the market rate.

* Insurance: A form of protection against a specific loss over a period of time that is secured by the payment of a regularly scheduled premium.

* Interest: The fee charged for the use of a sum of money, usually given as a percentage "interest rate"

* Jumbo Loan: Jumbo loans are larger than average loans.

Final Thoughts

Shopping for a home loan is no different than shopping for any other large purchase. Find a real estate agent you can trust and ask for the names of lenders that they have worked with in the past. Check your local paper or the internet for the various lender interest rates in your area. Contact several different lenders to see who can offer you the best mortgage and rates. You can definitely save on mortgage fees and other hidden costs if you shop around for the best lender.

© QuinStreet Media, Inc. 2005