Texas Lending Shares Insight into Common Mortgage Terms

Texas LendingWhat is a balloon payment? Texas Lending answers this and more in the following brief Q&A, which sheds light on some of the most misunderstood mortgage terms in the industry.

Q: Is a mortgage broker the same thing as a lender?

Texas Lending: No, a mortgage broker is the person or business who works with the buyer to arrange funding and negotiate contracts. Brokers don’t actually loan any money but are paid a fee, called a commission, for the service of helping the buyer obtain a loan. Similarly, a real estate broker does not own the properties he or she represents, they simply help facilitate the transaction and earn a small percentage of the sale.

Q: What is a balloon payment and how do I know if I am required to pay one?

Texas Lending: A balloon payment is a final lump sum due at the maturity date of a balloon mortgage. A balloon mortgage may have lower monthly payments until the end of its term, when a substantial portion of the principal is due.

Q: What is a credit risk score?

Texas Lending: This is a number that helps your lender determine the likelihood that you will pay back your loan. The most common type of credit score is the FICO score, which is based off an algorithm created by the Fair Isaac Corporation. A credit score is essentially a mathematical calculation and assigned a numeric value based on items found in your credit report. Most people’s credit score falls between 500 and 800, with higher scores receiving the most favorable terms.

Q: Are closing costs and the down payment one and the same?

Texas Lending: No, although they are typically paid around the same time, before the actual purchase. Closing costs include title insurance and escrow fees, appraisal fees, property taxes, and loan origination fees. The down payment is money that goes directly toward the principal purchase price of the property.

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