Annual Percentage Rate or “APR”: This is the “cost” of your credit over a year. It includes things like your interest rate, points, broker fees, and other credit charges a borrower is required to pay.

Adjustable Rate Loans or “ARM”: These loans typically offer a lower initial rate than fixed-rate loans; however, the interest rate will fluctuate based on market conditions during the life of the loan. The loan agreement will generally set maximum and minimum rates of fluctuation, but it is safe to conclude that as interest rates rise so will your loan payment and therefore as interest rates fall, so will your payment. This type of loan is often deemed a “calculated gamble” that only certain clients can afford to take. If you plan to own your home for a short period of time this risk may be for you. Call one of our loan officers today to see if an “ARM” loan is right for you.

Convenitial Loan: These types of loans are insured and/or guaranteed by private agencies; not FHA (Federal Housing Administration), the VA (Veterans Administration), or the Rural Development Services (formerly Farmers Home Administration/FmHA).

Escrow: There are two types of this, the first implies the holding of money or documents by a neutral third party until closing; or an account (usually bank) held by the lender (or servicer) where the homeowner pays money for the taxes and insurance related to the loan.

Fixed Rate Loans: This is the type of loan most commonly used and referred to as 15, 20, or 30-year loans. The 15, 20, and 30 imply the repayment terms in years. The interest rate and monthly payment (for principal and interest) will remain the same during the life of the loan. Those attributes are what make this loan the most popular type of loan accounting for 75% of all home mortgages. For example, the lender offers a 30 year fixed loan to the borrower and charges the purchaser 5% interest which is fixed and will not change for the entire term (30 years) of the loan. Even if the market rate rises to 7% or decreases to 3%, the borrower will continue to pay the fixed 5% interest rate.

Home Equity: The “equity” in your home is the difference between the amounts you owe on the mortgage(s) and how much your home is actual worth. Essentially, when you take a home equity loan or line of credit you are borrowing against the equity in your home. There are two types of home equity lending, home equity lines of credit and home equity loans. Each type has a considerably shorter repayment period than traditional types of home loans and relies on the equity in your home.

Example 1 (positive equity): If you bought your home for $300,000.00, made a down payment of $60,000.00 and had to finance (borrow) $240,000.00, then at time of purchase you have $60,000.00 equity in your home. However, ten years later you have been consistently making your monthly payments and have paid down $20,000.00 and your home’s market value has appreciated $100,000.00; therefore, your home is now worth $400,000.00. Following this example you now have $180,000.00 worth of equity in your home that you may borrow against.

Example 2 (negative equity): If you purchased your home for $300,000.00, made a down payment of $60,000.00 and had to finance (borrow) $240,000.00, you would again have $60,000.00 equity in your home. Again, ten years later you have been consistently making your monthly payments and have paid down $20,000.00; however, your home’s market value along with the real estate market itself has bottomed out and your home’s worth is $90,000.00 less than it had been at the time of purchase. Therefore, your home is now appraised for $210,000.00 and even with your consistent payments you still owe $220,000.00 on your mortgage thus leaving no equity in the home or what is known as “negative equity.” Essentially, the value of your home is now less than what you owe by $10,000.00, which makes it incapable of being borrowed against.*

*Please remember that this is a bare bones example, only meant to illustrate how equity in a home can grow and/or shrink during one’s ownership.

Interest Rate: These rates are heavily influenced by market conditions throughout the country and is essentially the cost of borrowing money expressed as a percentage rate.

Federal Assistance Mortgage or “FHA”: This is also known as the federal assistance loan and is insured by the Federal Housing Administration and may only be offered by federally qualified lenders. These types of loans are for those who would not traditionally qualify for a loan. Since these types of loans are for lower income borrowers, they also provide more protection from losing your home due to non-payment. This loan may be right for you if you are a first time home buyer ($8,000.00 incentive), do not have a lot of money for a down payment, you need low monthly payments, worried about fluctuation in payments, have doubts about qualifying for a loan, or if you like most people these days do not have perfect credit. Call one of our loan officers to see if this is the loan for you.

Federal Housing Administration: This US agency was created in 1934 under the National Housing Act of that year to improve housing standards and conditions along with providing an adequate home financing system, and to stabilize the mortgage market. Recently the FHA has gone back to its roots with incentives for first time home buyers and attempting to equalize the damage from the latest “boom and bust.”

Loan Origination Fees: The lender will charge fees for processing the loan and will usually express these as a percentage of the loan amount.

Lock In: Once you have a written agreement guaranteeing the borrower a specified interest rate on a loan, to be closed within a certain time period, usually 60 or 90 days that specifies a number of points to be paid and met at closing you are considered “locked in” to the contract.

Mortgage: This legal document is signed by the borrower and lender when the loan is made that provides the lender the right to take possession of the property should the borrower fail to pay off the loan or “default.”

Private Mortgage Insurance or “PMI”: This insurance protects the lender from loss if the borrower defaults on the loan. If the down payment is less than 20 percent of the sales price or where the amount financed is greater than 80 percent of the appraised value it is usually required.

Reverse Mortgages:This type of loan is a low interest home equity option for senior homeowners. The amount of the loan is based on a formula that takes the age of the youngest homeowner, the current interest rate, and the appraised value of the home into account. The older the homeowner the lower the interest rate, and the more valuable the home the more the loan amount may be. In order to qualify for reverse mortgage the Federal Housing Administration (FHA) requires that all homeowners of record be at least 62 years young, that the home be owned outright or the balance owed of the mortgage is no more than 65% of the home’s market value, and if the home in question is a mobile home it must be on a permanent foundation, built within the last thirty years, located on owned land and must pass an FHA inspection to qualify. The loan is not repaid until the last surviving homeowner permanently moves from the property or dies. When that occurs, the homeowner’s estate has 12 months to repay the balance of the reverse mortgage or sell the home to pay off the balance. Any remaining equity after repayment passes to the homeowner’s estate, and the estate is not liable if the home sells for less than the reverse mortgage’s balance.

Transaction, Settlement, or Closing Costs: This include and are not limited to application fees, title examination, title abstractors, title insurance, property survey fees, fees for deed preparation, mortgage preparation, settlement document preparation, attorney’s fees, recording fees, notary, appraisal, and credit report fees. In compliance with the Real Estate Settlement Procedures Act the borrower will receive a good faith estimate of closing costs at the time of application or within three (3) days of the application that lists the expected cost as an amount or range.

Veteran’s Administration Loan or “VA”: Created in 1944 via the Servicemen’s Readjustment Act or GI Bill of Rights it provides veterans with a federally guaranteed home with no down payment. Eligibility for this type of loan is defined as Veterans who served on active duty and have a discharge other than dishonorable after a minimum of ninety (90) days of service during wartime or a minimum of one hundred eighty one (181) days continuous service during peacetime; however, there are other restrictions and qualifications that our loan officers can guide you through. These loans are made by private lenders for the purchase of a home, which must be used for the Veterans personal occupancy.