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If you're applying for a mortgage for the first time, it may feel like you're learning a second language. All of the terms and regulations can seem daunting. One that doesn't need to be is "amortization," which is just the act of paying off debt in regular installments over a period of time.
"When you amortize a loan you basically pay off the principal by making regular installment payments," says Michael Litzner, Broker of Century 21 American Homes, who explains that this process typically takes place gradually over several years.
Another term you may be hearing is "negative amortization." What is the difference? When your monthly payment isn't enough to cover the loan interest, then your loan principal increases rather than decreases. This is called negative amortization, otherwise referred to as "deferred interest."
Home loans can be confusing, and finding the right type of home loan for your particular circumstances can be a frustrating process. "Knowing the difference between the two basic home loan types can help you make a confident decision, and ensure your buying process goes smoothly," says Michael Litzner, Broker of Century 21 American Homes. Conventional Loans A conventional loan-also known as a conforming loan-is one not insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA), both of which make homeownership affordable and accessible. "Conventional loans require a higher credit rating, and even for those who do qualify for a conventional loan may be better off with an unconventional one," explains Litzner. "This is because the lower your credit score, the higher your interest rate will be." Unconventional Loans (FHA) An unconventional loan, or non-conforming loan or FHA loan, can be obtained through a bank or private lender. The FHA has...
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