Mortgage 102

Real Estate Agent with Kenna Real Estate Company

Since there is so much to know about mortgages, here's the second in my mortgage series.  First, I have some more definitions for you.

 Annual Percentage Rate (APR)   An interest rate that shows the total cost of your mortgage in an annual rate.  This rate will usually be higher than your stated loan rate because it includes other items such as points and fees.  Sometimes this rate is a better way to compare loans than using the stated rate, but beware.  All mortgage companies do not calculate this rate in the same manner.   

 Earnest Money   Money paid along with an offer to a seller that assures the buyers sincerity.  The money is not refundable except under certain circumstances. 

 Escrow   The portion of your monthly payment that is set aside for taxes and insurance.

 Negative Amortization   When monthly payments are not large enough to pay any on the principal of the loan or the entire amount of the interest due.  The unpaid principal remains the same and the interest accrues so the unpaid balance gets larger. 

 Origination Fee   A fee charge by a lender up front at the time of closing as a lump sum.  It is stated as a percentage of the loan amount.  All lenders do not charge an origination fee. 

  Now, let's talk about loan programs.  There are several types of government-insured loans:

Federal Housing Administration (FHA) loans - With an FHA insured loan you can pay a low down payment and loans are available to all qualified buyers, but the maximum loan amount is limited and varies according to the area where the home is located.

 Veterans Administration (VA) loans --  The VA insured loans are available only to eligible veterans for their personal home.  They have a maximum loan amount, but are more flexible than FHA and other loans and do not require down payments.

 USDA Rural Development - The offers low-interest loans with no down payment to low to moderate income people in rural areas.  RHS is a branch of the US Dept of Agriculture.

 You may hear these two names when mortgage loans are discussed:

 Fannie Mae  Fannie Mae is a publicly-owned company who operates in the secondary mortgage market to ensure that mortgage bankers and other lenders have enough funds to lend to home buyers at low rates.

  Freddie Mac   Freddie Mac also is a publicly traded company that operates in the secondary mortgage market.

Bothe Fannie Mae and Freddie Mac were chartered by the federal government.

There are programs available to provide down payment assistance, to help first time home buyers and other programs.  Some of these are federal, some are state and others are local city or county programs.  These programs usually help with down payments and/or closing costs, but may also subsidize lower interest rates.