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APRs, ARMs and other mortgage terms

Are you in the process of buying a house, but you're baffled with acronyms and terms on documents? Here are definitions of several you will encounter as you confer with lenders:

ARM, adjustable-rate mortgage: A mortgage loan with an interest rate that periodically changes.

APR, annual percentage rate: The yearly interest rate paid on a loan. Federal law requires that this rate is disclosed as part of the truth-in-lending documents.

Conventional mortgage: A mortgage offered by a lender that will probably be bought on the secondary loan market by Fannie Mae or Freddie Mac; these loans have an upper limit of $625,500.

FHA, Federal Housing Administration: A government agency that offers low-down-payment loans along with housing information.

Fixed-rate mortgage: A mortgage loan in which the interest rate remains the same for the entire length of the loan.

Good faith estimate: An estimate of the entire cost of buying a home, including all down payment, interest payments and closing costs associated with a loan; to be provided by the lender within three days of a loan application.

Jumbo loan: A mortgage loan above $625,500; these loans sometimes carry a higher interest rate and require a higher down payment and higher credit score than smaller loans.

Loan origination fee: A fee charged by the lender for administering and processing the loan; also sometimes called a "point" and is equal to 1 percent of the loan amount.

Mortgage insurance: Insurance that protects the lender against loss if the borrower defaults on the loan.

Points: A fee charged by the lender equal to 1 percent of the loan amount; points can be paid at the closing to lower the interest rate on a loan.

Preapproval: A qualification for a mortgage by a lender based on proof of your income, assets and credit score that states the maximum loan that you can qualify for; final loan approval also requires an appraisal on the property, which demonstrates that the value of the property is more than the loan amount.

Prequalification: An estimate of your ability to qualify for a loan given by a lender based on your creditworthiness, income and assets but without a complete proof of all assets.

APRs, ARMs and other mortgage terms 02/20/14 [Last modified: Thursday, February 20, 2014 7:01pm]

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