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Home Loan Frequently Asked Questions
Lending FAQ
What
is a point?
What is an adjustable rate mortgage?
What is an open end loan?
What is a wrap-around loan?
What is a package loan?
What are institutional lenders?
What are non-institutional
Lenders?
What is a promissory note?
What is a mortgage?
What is a trust deed?
What is a straight term loan?
What is a balloon payment?
What is a fully amortized
loan?
What is an
impound account?
What is PMI?
What is a reverse annuity mortgage
(RAM?)
What is a construction loan?
What is a good faith
estimate of closing costs?
What is Fannie Mae?
What is Ginnie Mae?
What is a VA loan?
What is a
conventional loan?
What is a FHA loan?
A point is 1% of the loan amount.
An adjustable rate mortgage is a mortgage in which interest rate is adjusted periodically.
In an open end loan, the borrower can re-borrow a portion of the loan that has been paid.
In a wrap-around loan the new loan "wraps" around his original loan, whereas a second lender assumes payments on the first loan, and lends the borrower additional funds.
A package loan covers real and personal property, and is usually used for new construction, where major appliances (personal property) are included in the loan as well as real estate (real property).
Institutional lenders include: savings and loans associations, commercial banks, mutual saving banks and life insurance companies.
Non-institutional lenders include mortgage brokers and bankers, pension funds, trust funds, private individuals, foreign investors, and university and hospital endowment funds, credit unions and loan companies.
Normally, a promissory note is one where the borrower gives his or her personal, unconditional promise to repay a loan.
A mortgage is like a promissory note, given to the lender (mortgagee) by the borrower (mortgagor). Therefore, when there you hear about a property that has a mortgage, it is the lender that has the mortgage, not the borrower.
A trust deed is similar to a mortgage, yet it involves three parties. (The mortgage involves two parties, the lender and the borrower.) In the trust deed, there is the borrower (trustor), the lender (beneficiary), and the trustee, which may be a private party or private institution. A borrower obtains a loan after issuing a promissory note and a trust deed, which conveys bare or naked title, held by a trustee. If the borrower defaults on the loan, the trustee is instructed by the lender to sell the property, without the necessity of going through a court action.
Known as a term loan, or straight loan, this is a loan where the payments are interest only, during the term of the loan. At the end of the loan's term, the entire sum of the loan amount is due in one large payment.
If principal is due at the end of a loan term, that payment due is called a balloon payment.
In a fully amortized loan, there are regular, equal payments, including the principal and interest, normally scheduled over a long period of time, traditionally 30 years.
A lender may require an impound account, where an additional amount (aside from principal and interest) is placed into an impound account, to pay expenses such as property tax or insurance.
A borrower who puts down less than 20% in a conventional loan, will be required to pay Private Mortgage Insurance (PMI), to protect the lender.
This type of loan allows an older homeowner to tap his or her equity, by providing monthly payments to the borrower from the lender. The loan is payable at the sale of the house or death of the borrower.
The construction loan is an interim loan, lasting for the time of the construction project. Normally a lender will not issue a construction loan if the borrower does not have take out commitment from a second lender, to finance the property (by paying off the construction loan) after completion.
At the time of a loan application, or within three working days thereafter, the lender must provide the borrower with a written good faith estimate of closing costs, including: credit report charges, survey charges, recording fees, title insurance premiums, interest charges, loan origination fees, mortgage insurance premiums, and attorney fees. Although the lender is required by federal law to provide this, it important to remember that this is an estimate, and not an absolute final cost.
Fannie Mae, or FNMA, is a private corporation dealing in the purchase of first mortgages. They operate exclusively in the secondary mortgage market, purchasing mortgages from lenders, which are held in their portfolio.This allows the lenders to use that money to make more mortgages for more home buyers. According to their website, their mission is to "...tear down barriers, lower costs, and increase the opportunities for homeownership and affordable rental housing for all Americans."
Ginnie Mae, or the Government National Mortgage Association (GNMA) is a federal association which works with the F.H.A., assisting in providing mortgages and purchasing mortgages in a secondary capacity.
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