Basic Home Loan Products
Adjustable Rate Mortgage (ARM): A mortgage program in which the interest rate and the monthly payment are adjusted at regular intervals according to the changes in national interest rates.
Balloon Mortgage: A mortgage which is payable in full after a period that is shorter than the term. They are riskier than ARMs because there is no limit on the extent of a rate increase at the end of the balloon period.
Conventional Loan: A home mortgage that is not insured by a government program. These types of loans generally require a substantial down payment.
Fixed Rate Mortgage: A home loan program where the interest rate does not vary throughout the life of the loan.
- 30YR fixed: A loan that has the same monthly amount due for 30years
- 15YR fixed: A loan that has the same monthly amount due for 15years
Seller Financing: when a home owner agrees to take monthly payments from the purchaser in lieu of a bank loan.
Government Agencies Associated with the Mortgage Industry
Fannie Mae (Federal National Mortgage Association): A public government sponsored corporation that buys and sells loans from lenders on the secondary market.
Freddie Mac (Federal Home Loan Mortgage Corporation): A public government sponsored enterprise that buys and sells mortgages from lenders on the secondary market.
Government insurers: (FHA, USDA, VA): These are not actual loans, this is the government agency that insures/guarantees them.
- Federal Housing Administration (FHA): government insured home loan that are less stringent that a conventional loan and that only requires a 3.5% down payment
- United States Department of Agriculture (USDA): government insured home loan for homes in ‘rural’ areas that required no money down.
- Department of Veteran Affairs (VA): government guaranteed loan for American veterans and their surviving spouses that require not down payment.
Other Mortgage Words that are Good to Know
Term: The length of a loan. Typically loans come in 30 or 15 year terms.
Annual Percentage Rate (APR): The rate of interest on a yearly basis which includes charges on the mortgage loan and the interest payment
Credit Score: A numerical quantity reflecting a borrower’s credit worthiness. Used by lenders to find out the risk in approving a home loan.
Closing: The final step in the loan process when the seller transfers title to the buyer, the buyer signs the loan documents and receives the loan amount from the lender.
Closing Costs: Fees paid by the borrower at closing. These include charges for originating and processing the loan, appraisal costs, inspection costs and agent commission.
Down Payment: The amount of cash which the home buyer pays towards the purchase price at closing.
Debt-to-income ratio (DTI): The ratio of the monthly debt to the pre-tax gross monthly income.
Escrow Account: Account into which lender deposits part of the monthly payments made by borrower. The deposits include payments towards property taxes, homeowners insurance and mortgage insurance.
Mortgagee: The lender offering the loan.
Mortgagor: The borrower.
Mortgage: A home loan.
Note: It is your written promise to pay off the loan amount on certain terms and conditions. The note also mentions what the lender is likely to do if you default.
Private Mortgage Insurance: Insurance policy offered by an insurance company in order to protect the lender from losses if the borrower defaults on his payments.
Rate Lock/Lock-In: A written commitment which guarantees a fixed rate on your loan for a certain time period before closing. Usually, rates are locked for 30, 45 or 90 days till the closing date.