Definitions:

Loan Products: Different loan types and programs for which you can qualify (e.g. 30 Year Fixed, 5/1 ARM, FHA loan, etc.).

Fixed-Rate Mortgage: A type of mortgage with payments that remain the same throughout the term of the loan. The interest rate is also fixed for the term of the loan (unlike an adjustable rate mortgage).

30 Year Fixed: The most popular type of loan, the loan amount is paid off over 30 years with a fixed interest rate and fixed payment. 30 Year Fixed loans are typically for buyers who are looking for long-term predictability of their housing costs.

15 Year Fixed: A type of loan in which the loan amount is paid off over 15 years with a fixed interest rate. Since the loan term is shorter than the 30 Year Fixed, interest rates are typically lower and monthly payments higher than on a 30 Year Fixed-Rate Mortgage with the same loan amount. These loans are for those who are looking for the predictability of a fixed-rate loan but want to pay less interest, and can afford the higher monthly payments.

40 Year Fixed: The loan amount is paid off over 40 years with a fixed interest rate. Since the loan term is longer, there is more time to pay off the loan. However, interest rates are typically higher than for 30 Year Fixed and the total amount of interest paid over the term of the loan will be higher. These loans are typically for buyers who need more time to pay off their loans or are seeking lower monthly payments.

Adjustable Rate Mortgage (ARM): A type of mortgage with payments that may change over the life of the loan. The interest rate is adjustable and can vary according to an established financial index such as the United States Treasury (UST) and the London Interbank Offered Rate (LIBOR) indices. ARM lenders add a set percentage of the loan amount or “margin” on top of the index rate to determine the adjusted interest rate at the time the ARM rate adjusts, under the terms of the loan.

5/1 ARM: The interest rate is fixed for the first 5 years and then adjusts every year thereafter for the term of the loan, typically 30 years. The adjustable rate is based on the index (LIBOR, UST, etc.) plus a margin. Interest rates are typically lower for the initial period than fixed rate loans and are typically for those looking to sell in the near term.

3/1 ARM: The interest rate is fixed for the first 3 years and then adjusts every year thereafter for the term of the loan, typically 30 years. The adjustable rate is based on the index (LIBOR, UST, etc.) plus a margin. Interest rates are typically lower for the initial period than fixed rate loans and are typically for those looking to sell in the near term. Interest rates are also typically lower than for 5/1 and 7/1 ARMs since the fixed period is shorter.

7/1 ARM: The interest rate is fixed for the first 7 years and then adjusts every year thereafter for the term of the loan, typically 30 years. The adjustable rate is based on the index (LIBOR, UST, etc.) plus a margin. Interest rates are typically lower for the initial period than fixed rate loans and are typically for those looking to sell in the near term. Interest rates are typically higher than for 5/1 and 3/1 ARMs since the fixed period is longer.

Conforming Loan: A A loan that fits within the loan limits and guidelines set forth by Fannie Mae and Freddie Mac. The loan limits can change from year to year and are dependent on the family occupancy of the property (e.g. single-family, two-family, three-family, four-family, etc.)


Non-Conforming Loans:
A loan that fails to meet the Fannie Mae and Freddie Mac loan purchasing criteria. Reasons could include: the loan amount exceeds the conforming loan limits, low credit score or insufficient credit, recent bankruptcy, high debt to income ratio, etc. The most popular type of non-conforming loan is a Jumbo Loan, which exceeds the loan limits set forth by Fannie Mae and Freddie Mac. Non-Conforming mortgage loan programs generally charge a premium interest rate to borrowers compared to Conforming loans.

FHA Loan: A type of loan backed by the Federal Housing Administration (FHA) that guarantees the lender will receive payment in the event the borrower defaults. FHA loan programs are characterized by lower-than-conventional down payment requirements, but require the borrower to pay an upfront mortgage insurance premium (MIP) in addition to a monthly mortgage insurance payment for the term of the loan. These fees may exceed the cost of the private mortgage insurance premiums associated with conventional, or non-FHA, home loans.

VA Loan: A type of loan guaranteed by the US Department of Veteran Affairs that offers qualified Active Military Service Members, Veterans, and their surviving spouses long-term financing on a primary residence. Borrowers must provide a certificate of eligibility that establishes their military service to the lender to qualify for a VA loan.

FHA Jumbo Loan: A type of FHA loan that exceed the loan limits of a conventional FHA Loan.

Other: Any other type of loan including: Balloon, Interest-Only, Reverse Mortgage, etc.

APR (Annual Percentage Rate): The total annual cost of a loan expressed as a percentage. It is a useful tool for borrowers to evaluate and compare loans since it takes into account the interest rate as well as other fees and costs related to the loan. Note: it does not include all fees and costs associated with the loan.

Interest Rate: The interest charged by the lender expressed as a percentage of the loan to reflect the lender's risk. There are many factors that can affect the interest rate including type of loan (fixed, ARM), credit score, property type, property use, loan term, etc.

Loan Amount: The total amount borrowed from the lender (principal) calculated as the property value less the down payment. If the lender requires an upfront mortgage insurance premium as part of the lender fees, the upfront premium may be rolled into the loan amount.

Down Payment: The amount paid in cash upfront towards the purchase price of the property.

Lender Fees: The fees paid to the lender during the home buying or refinancing process including at closing to cover the lender's costs. Lender fees could include any prepaid fees, an appraisal fee, credit report fee, flood certification fee, tax service fee, origination fee, points, and any upfront fees. Since lender fees are an estimate based on information provided by the lender and other data, the actual lender fees may be higher.

Cash to Close: The costs incurred to process and close a loan and transfer ownership of the property, excluding the property price. Closing costs can include the down payment, recording fees, settlement fees, appraisal fees, loan origination fees, any prepaid items.

Loan Term: The specified time that the borrower has to repay the loan.

Lock Period: The number of days that the lender guarantees a particular interest rate for during the loan application process. It lets borrowers manage the risks of fluctuating interest rates as they are waiting to close their home purchase transaction.

Points: Also known as "discount points", it is a form of prepaid interest a borrower can pay to reduce the interest rate they pay on a loan. 1 point is typically 1% of the loan amount and reduces the interest rate between 1/8 to 1/4 percent depending on the borrower.