Mortgage Terminology for the First Time Home Buyer
by Dale Ronewicz
Published on this site: July 8th, 2005 - See
more articles from this month...
Buying a Home for the first time can be a little "nerve
racking". Mortgage terminology that brokers use everyday
can leave you scratching your head or shaking your head pretending
that you know what they're talking about. Here are some mortgage
terms and definitions that you"ll be hearing when shopping
for a first time home buyer loan:
Adjustable-rate loans, also known as variable-rate loans,
usually offer a lower initial interest rate than fixed-rate
loans. The interest rate fluctuates over the life of the loan
based on market conditions, but the loan agreement generally
sets maximum and minimum rates. When interest rates rise,
generally so do your loan payments; and when interest rates
fall, your monthly payments may be lowered.
Annual percentage rate (APR) is the cost of credit expressed
as a yearly rate. The APR includes the interest rate, points,
broker fees, and certain other credit charges that the borrower
is required to pay.
Conventional loans are mortgage loans other than those insured
or guaranteed by a government agency such as the FHA (Federal
Housing Administration), the VA (Veterans Administration),
or the Rural Development Services (formerly know as Farmers
Home Administration, or FmHA).
Escrow is the holding of money or documents by a neutral
third party prior to closing. It can also be an account held
by the lender (or servicer) into which a homeowner pays money
for taxes and insurance.
Fixed-rate loans generally have repayment terms of 15, 20,
or 30 years. Both the interest rate and the monthly payments
(for principal and interest) stay the same during the life
of the loan.
The interest rate is the cost of borrowing money expressed
as a percentage rate. Interest rates can change because of
market conditions.Loan origination fees are fees charged by
the lender for processing the loan and are often expressed
as a percentage of the loan amount.
Lock-in refers to a written agreement guaranteeing a home
buyer a specific interest rate on a home loan provided that
the loan is closed within a certain period of time, such as
60 or 90 days. Often the agreement also specifies the number
of points to be paid at closing.
A mortgage is a document signed by a borrower when a home
loan is made that gives the lender a right to take possession
of the property if the borrower fails to pay off the loan.
Overages are the difference between the lowest available
price and any higher price that the home buyer agrees to pay
for the loan. Loan officers and brokers are often allowed
to keep some or all of this difference as extra compensation.
Points are fees paid to the lender for the loan. One point
equals 1 percent of the loan amount. Points are usually paid
in cash at closing. In some cases, the money needed to pay
points can be borrowed, but doing so will increase the loan
amount and the total costs.
Thrift institution is a general term for savings banks and
savings and loan associations.
Transaction, settlement, or closing costs may include application
fees; title examination, abstract of title, title insurance,
and property survey fees; fees for preparing deeds, mortgages,
and settlement documents; attorneys' fees; recording fees;
and notary, appraisal, and credit report fees. Under the Real
Estate Settlement Procedures Act, the borrower receives a
good faith estimate of closing costs at the time of application
or within three days of application. The good faith estimate
lists each expected cost either as an amount or a range
When shopping for a first time home buyer loan make sure
you shop around and find a broker or a loan officer that's
responsive to your needs. And don't be afraid to ask question.
Remember, it's the questions you don't ask that could keep
you from saving money.
Dale Ronewicz (American-Lenders.org). For more
on First Time Home Buyer Loans please visit:
http://www.american-lenders.org/firsttime_home_buyer_loans
|
