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 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.