Mortgage and Lending
Getting a loan is often the most tedious part of the purchase process, and the point where many deals fall thru. There are many products available and each one will typically have its own price. Your real estate agent will be able to help you find a lender suitable to the property. They will make it clear though that it is up to you to decide which lender is best for you.
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Mortgage
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Private mortgage insurance (PMI)
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Fixed rate loan
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Adjustable rate mortgage (ARM)
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Conforming loan
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Jumbo loan
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Veteran's administration loan
mortgage - a written agreement that is used to create a lien on real property to secure a promissory note that is executed to provide the loan of funds for the purchase or refinance of the property.
private mortgage insurance (PMI) - a form of insurance developed to protect lenders who offer high loan-to-value ratio mortgage loans. Loans exceeding an 80% loan-to-value ratio may require PMI. For example, if Bank A agrees to make Abel a $190,000 loan on a $200,000 property, it will contact a PMI company and arrange insurance for the first 20% of the purchase price or value ($40,000). The PMI company will charge Abel a monthly premium and possibly a setup fee for the insurance. In the event of a default by Abel, the PMI company will pay the lender up to $40,000 to cover any losses. In essence, PMI acts as a substitute for borrower equity, and the lender is able to offer a 95% loan on nearly the same basis as an 80% loan. This insurance may be terminated when the loan-to-value ratio exceeds 80%, either through appreciation in value or by principal reduction of the loan.
fixed rate loan - a loan in which the interest rate and payment remain the same for the life of the loan. For example, $100,000 borrowed at a 7% fixed rate over 30 years would require 360 monthly payments of $665.00
adjustable rate mortgage (ARM) - (also called a variable rate mortgage) a mortgage in which the interest rate changes over the period of the loan. The key components of an ARM are the start rate, the index, the margin, the adjustment period, and the note rate. The initial interest rate for the loan is called the start rate. The underlying interest rate to which the loan is tied is called the index. Common indexes include the rate on 26-week T-bills, the COFI (the11th District cost of funds index), and LIBOR (the London Interbank Offered Rate). The index may change daily, weekly, monthly, quarterly, or upon the occurrence of some event, such as a Federal Reserve change in the cost of funds to member banks. The margin is a percentage added to the index rate to derive the actual note rate. The adjustment period is the time between note rate adjustments. The note rate is the actual effective interest rate on the ARM at a given point in time.
conforming loan - a residential mortgage loan limited to an amount specified in accordance with rules established by the Federal National Mortgage Association (FNMA or Fannie Mae) or the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) for the purchase of such loans. Dollar limits vary over time and between states. Because conforming loans are readily bought and sold, they generally carry a lower interest rate than that of nonconforming loans.
jumbo loan - a real estate loan larger than the maximum "conforming" loan limit. The actual amount changes frequently, reflecting the willingness of the secondary market to purchase loans of ever-increasing amounts. Currently, the conforming loan limit is $240,000. Jumbo loans are those loans between $240,050 and $650,000. Loans beyond $650,550 are sometimes called super jumbo loans.
Veterans Administration (VA) loan - (also called "GI loan" or "VA loan") a loan partially guaranteed by the Veterans Administration under the Servicemen's Readjustment Act of 1944 and later, made to an eligible veteran or to an unremarried widow or widower of an eligible veteran for the purchase of real property. The purpose of the loan guarantee program is to encourage private lenders to make low-down-payment or no-down-payment loans to eligible veterans by guaranteeing a portion of the loan. Eligibility is determined by the veteran's length of active service, but generally varies between six months and two years.
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