Loan Programs

Fixed Rate Mortgages
A mortgage in which the interest rate does not change during the entire term of the loan.

Adjustable Rate Mortgages (ARM)
These loans begin with an interest rate that is lower than a comparable fixed rate mortgage, but the rate changes at specified intervals.

Standard ARMS and the Differences
Choosing an ARM with an index that reacts quickly lets you take full advantage of falling interest rates.

Introductory Rate ARM's
Most ARM's have a low introductory rate, which is good anywhere from 1 month to as long as 10 years.

Balloon Mortgages
Short term mortgages that have some features of a fixed rate mortgage.

Interest Rate Buydowns
The buyer would pay points above current market points in order to pay a below market interest rate during the first two years of the loan. At the end of the two years they would then pay the old market rate for the remaining term.

Cost of Funds Index (COFI)
The ratio of the dollar amount paid in interest during the month to the average dollar amount of the funds for that month constitutes the weighted average cost of funds ratio for that month.

Graduated Payment Mortgage (GPM)
With a GPM the payments are usually fixed for one year at a time.

Mortgage Terms

Adjustable Rate (also none as variable rate)
A mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes.

Adjustment Period
This is the length of time for which the interest rate is fixed on an adjustable. Therefore if the adjustment period is six months, then the interest rate will remain fixed for six months, after which time it will adjust.

Amortization
A gradual paying off of a debt by periodic installments which pay principal and interest.

Annual Percentage Rate - APR
The effective rate of interest for a loan per year. This rate is typically higher than the note rate because it takes into account closing costs. This is one way to compare loan programs offered by different lenders. Caution : the APR is sometimes computed differently by different lenders and can be misleading.

Appraisal
A written justification of the price paid for a property, primarily based on an analysis of comparable sales of similar homes nearby.

Balloon (payment) Mortgage
Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.

Bankruptcy
The financial inability to pay one's debts when due. The debtor surrenders his assets to the bankruptcy court. An individual typically files for Chapter 7 (all debts wiped out) or Chapter 13 (establishes a payment plan to pay off debts). A bankruptcy stays on an individual's credit report for 7 years.

Broker
Arranges financing for a borrower by placing loans with lenders. Mortgage brokers are paid a fee by the borrower or the lender when a loan closes.

Buydown
Usually refers to a fixed rate mortgage where the interest rate is "bought down" for a temporary period, usually one to three years. After that time and for the remainder of the term, the borrower’s payment is calculated at the note rate. In order to buy down the initial rate for the temporary payment, a lump sum is paid and held in an account used to supplement the borrower’s monthly payment. These funds usually come from the seller (or some other source) as a financial incentive to induce someone to buy their property. A "lender funded buydown" is when the lender pays the initial lump sum. They can accomplish this because the note rate on the loan (after the buydown adjustments) will be higher than the current market rate. One reason for doing this is because the borrower may get to "qualify" at the start rate and can qualify for a higher loan amount. Another reason is that a borrower may expect his earnings to go up substantially in the near future, but wants a lower payment right now.

Certificate of Eligibility
The document issued by the Veterans Administration to those that qualify for a VA loan which may be used to buy a house with 0 down. Certificates of eligibility may be obtained by sending the form DD-214 to the local VA office along with VA form 1880.

Certificate of Reasonable Value (CRV)
Once the appraisal has been performed on a property being bought with a VA loan, the Veterans Administration issues a CRV.

Chain of Title
An analysis of the transfers of title to a piece of property over the years.
Example : An abstractor can research title to property going back to the date that the property was granted to the United States.

Clear Title
A title that is free of liens or legal questions as to ownership of the property. Most lenders require a clear title prior to closing.

Closing
1. The act of transferring ownership of a property from seller to buyer in accordance with a sales contract.
2. The time when a closing takes place.

Closing Costs
Closing costs are separated into what are called "non-recurring closing costs" and "pre-paid items." Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. "Pre-paids" are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate which they must issue to the borrower within three days of receiving a home loan application.

Credit Report
A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.

Escrow
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.

For names of home mortgage consultants or any additional loan information, please contact us.

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