Our experienced loan officers are available any time for questions--we love to talk about our loan programs! In the meantime here are some basic terms for quick reference:
Fixed Rate Financing
The interest rate is locked and does not change for the life of the loan.
ARM (adjustable rate financing)
The rate can change. The frequency of change and the amount it can change varies based on how the ARM is set up. This will typically start low and go higher. It is important to understand an ARM is amortized over 30 years, which does not mean it is fixed for 30 years.
Money paid to reduce the loan amount in relation to the purchase price.
The fee charged to borrow money. This can be a fixed or adjustable rate.
Debt to Income Ratio
The amount, measured as a percentage, of debt as compared to your gross monthly income.
An estimate of value of a property done by a licensed professional, called an appraiser, based on comparison sales in the area in the last six months. The appraisal is not a home inspection, even for RD, VA and FHA loans.
This means how long you will have your loan. 30 year term, 15 year term, etc. Sometimes expressed as months (30 years = 360 months).
A highly recommended and thorough review of the property by a licensed home inspector.
An escrow account is set up by the lender to collect the property taxes, homeowner's insurance and any applicable mortgage insurance or guarantee fee. 1/12th of the annual amount is collected as part of the monthly mortgage payment and put into this account. When the insurance and tax bills are due the lender makes the payment out of this account.
Things that are considered 'prepaid' are items that you pay for up-front at closing, like paying for a full year of home owner's insurance at closing. Typically the mortgage interest from the day of closing to the first of the following month is also prepaid at closing. A few months of taxes and insurance are also prepaid to set up your escrow account.
These are fees incurred to complete your loan which typically vary between lenders. Closing coss include the appraisal, abstract update, preliminary title opinion, recording fees and origination fee (if applicable). A lender should provide a breakdown of these expenses so you are able to compare between lenders.
Seller Paid Expenses
When purchasing a home, your Realtor can help you negotiate for the seller to pay all or part of prepaids and closing costs. If you negotiate this in your offer, it is important for you to understand that you are paying more for the house to have the seller pay these costs for you.
Cash to Close
The money actually paid at closing. Down payment + prepaids + closing costs = cash to close. In Iowa, this number is reduced at closing by the seller's tax proration credit. Talk to our expert loan officers for a detailed explanation.
It is important to understand there are typically five options to choose from when discussing loan programs. Those include Conventional, Rural Development, VA and FHA and Conventional ARM (typically in-house). However, not all lenders participate or encourage all loan programs. Our mortgage professionals will discuss all options with you. At RMN we feel strongly about the long term benefits of fixed rate financing to ensure stability in the future for our borrowers.