If you’ve ever tried to get a mortgage or refinance, you may have felt like you were in a foreign language class. After all, some of the words seem so familiar, yet you aren’t sure you know what they mean. APR, PMI, escrow, jumbo … and on and on. In this article, we’ll decipher some of the most common loan and mortgage terms that you’re likely to come across. Let’s jump right to it.
Adjustable-Rate Mortgage (ARM): Adjustable-rate loans are loans with a rate that can change from time to time. ARM rate loans are tied to an index such as LIBOR or the prime rate and will change according to a schedule laid out in your loan documents.
Annual Percentage Rate (APR): Annual Percentage Rate is the interest rate expressed as an annual rate. When it comes to mortgages, the Annual Percentage Rate is always higher than the interest rate, since it includes additional costs such as points or mortgage insurance and other fees associated with the mortgage.
Appraisal: Appraisals are an evaluation of a property’s value on a specific date. Appraisals are made by licensed professionals.
Broker: A mortgage or loan broker typically works with multiple lenders and takes/processes loan applications.
Closing Costs: All of the costs paid by the borrower and the seller if a home is sold rather than refinanced are called closing costs. Such costs may include the appraisal; points; tax service, document processing, underwriting, and/or application fees; lender or broker fees; credit reports; document processing, flood certification; inspection; and title fees, and more.
Conventional: Conventional loans or financing are loans that meet the funding criteria of Freddie Mac or Fannie Mae. This is in contrast to government-insured loans like VA or FHA or portfolio loans.
Credit Report: A credit report shows a borrower’s payment history and info about public record items such as judgments, bankruptcies, or tax liens. Credit reports are compiled by three major credit reporting agencies- Experian, Equifax, and TransUnion.
FHA: FHA loans are loans that have been insured by the Department of Housing and Urban Development (HUD). These loans also feature low down payments. In addition to this, certain closing costs may often be included in the loan requirements. With FHA, credit scores may be more flexible than some conventional loans.
