Commonly misunderstood mortgage terms include preapproved versus prequalified, lender versus broker, and inspection versus appraisal, claims MortgageLoan.com. For example, lenders are the banks that provide the funds to the borrower, while brokers are third-party agents that arrange mortgages between borrowers and lenders.
A prequalification and a preapproval are the two most commonly misunderstood mortgage terms, according to MortgageLoan.com. A prequalification does not guarantee approval, but it is the bank's way of estimating how much financing borrowers qualify for upon approval. A preapproval is a commitment by the lenders to lend a specific amount of money upon meeting certain terms set forth by the lenders. Preapprovals require borrowers to submit an application, allowing lenders to check credit scores, income and assets.
Two other commonly misunderstood terms are inspections versus appraisals, states MortgageLoan.com. Although the terms are similar, they serve two different purposes. Appraisals determine the fair market value of homes and the properties, while inspections identify defects in the homes. When inspections occur, the inspectors try to identify problem areas such as mold, weak foundations and water damage. Appraisers, on the other hand, try to ensure that borrowers do not overpay for the homes by borrowing more money than the fair market value of the home.