Mortgage Terminology for the First Time Home Buyer
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
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
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
Mortgage Terminology for the First Time Home Buyer was written
by Dale Ronewicz (American-Lenders.org). For
more on First Time Home Buyer Loans please visit:
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