Mortgage Terms and Definitions

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Fixed-rate mortgage: A fixed-rate mortgage is a type of home loan where the interest rate remains the same throughout the entire term of the loan. This means that the borrower’s monthly payments will remain consistent, providing a sense of stability and predictability. Fixed-rate mortgages are popular among homebuyers who plan to stay in their homes for an extended period and want to avoid fluctuations in interest rates that could lead to higher monthly payments.

Adjustable-rate mortgage (ARM): An adjustable-rate mortgage is a type of home loan where the interest rate can fluctuate over the life of the loan. The interest rate is usually lower initially, making the monthly payments more affordable. However, after the initial fixed period, the interest rate can change periodically based on market conditions, potentially leading to higher monthly payments. ARMs are popular among homebuyers who expect to move or refinance within a few years.

Jumbo loan: A jumbo loan is a type of mortgage that exceeds the maximum loan limits set by Fannie Mae and Freddie Mac. Jumbo loans are typically used for high-end properties with prices that exceed the maximum conforming loan limit. Jumbo loans usually require higher down payments and have stricter credit requirements than conforming loans.

Conventional loan: A conventional loan is a type of mortgage that is not insured by the government. This means that lenders bear the risk of default and may have stricter credit and income requirements than government-insured loans. Conventional loans can be either conforming or non-conforming.

FHA loan: An FHA loan is a type of government-insured mortgage that is backed by the Federal Housing Administration (FHA). FHA loans are designed to help low- and moderate-income borrowers who may not be able to qualify for conventional loans. FHA loans require a lower down payment and have more relaxed credit score requirements than conventional loans.

VA loan: A VA loan is a type of government-insured mortgage that is available to eligible veterans, active-duty service members, and their spouses. VA loans are backed by the Department of Veterans Affairs (VA) and offer a range of benefits, including no down payment, no private mortgage insurance (PMI), and more relaxed credit requirements.

USDA loans: A USDA loan is a type of government-insured mortgage that is backed by the U.S. Department of Agriculture (USDA). USDA loans are designed to help low- and moderate-income borrowers in rural areas purchase homes. USDA loans require no down payment and have more relaxed credit requirements than conventional loans.

Interest rate: The interest rate is the percentage of the loan amount that the lender charges the borrower for the use of the money. Interest rates can be fixed or adjustable.

Annual Percentage Rate (APR): The APR is the total cost of the loan, including the interest rate and any fees or charges, expressed as a yearly rate.

Closing costs: Closing costs are the fees and expenses associated with finalizing a mortgage loan, including appraisal fees, title insurance, attorney fees, and more.

Down payment: The down payment is the amount of money that the borrower pays upfront towards the purchase price of the home.

Private Mortgage Insurance (PMI): PMI is a type of insurance that protects the lender in case the borrower defaults on the loan. PMI is typically required when the borrower’s down payment is less than 20% of the home’s purchase price.

Points: Points are fees paid by the borrower to the lender in exchange for a lower interest rate on the mortgage.

Pre-approval: Pre-approval is the process of getting approved for a mortgage loan before shopping for a home. Pre-approval shows the borrower how much they can afford to borrow and can make the homebuying process easier by helping them focus on homes within their price range.

Here are some helpful resources:

Mortgages for People with Poor Credit – Tips on how to get approved for a mortgage with poor credit.
Mortgage Terms and Definitions – Common mortgage related terms and their definitions.
Home Buying Checklist – What every home purchaser must do.
Down Payment Assistance – Find out how to get help with your down payment.
First Time Home Buyers – Special programs for people who are first time buyers.
Should I Refinance get a Second Mortgage or a HELOC? – Find out what is the best choice for your situation.
Foreclosure and Loan Modification Help – Get help to stop foreclosure and modify your mortgage.

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