Adjustable-rate loans, (also known as variable rate loans). Adjustable-rate loans usually offer a lower initial interest rate than fixed-rate loans. The interest rate fluctuates over the life of the loan based on market conditions, but the loan agreement generally sets maximum and minimum rates. When interest rates rise, generally so do your loan payments; and when interest rates fall, your monthly payments may be lowered.

Annual Percentage Rate (APR). APR is the cost of credit expressed as a yearly rate. The APR includes the interest rate, points, broker fees, and certain other credit charges that the borrower is required to pay.

Conventional Loans. Conventional loans are loans other than those insured or guaranteed by a government agency such as the FHA (Federal Housing Administration), the VA (Veterans Administration), or the Rural Development Services (formerly known as Farmers Home Administration or FmHA).

Escrow. Escrow is the holding of money or documents by a neutral third party prior to closing. It can also be an account held by the lender (or servicer) into which a homeowner pays money for taxes and insurance.

Escrow (or reserve) Funds. Some lenders require that you set aside money in an escrow (reserve) account to pay for property taxes, homeowner’s insurance, and flood insurance (if you need it). Lenders use escrow funds to ensure that these items are paid in time to protect their interest in your home. With an escrow account, money is held by the lender or the lender’s agent, who then pays the taxes and insurance bills when they are due. At closing, you may need to provide some payment into this account, depending on when payments will be due.

Fixed-rate loans. Fixed-rate loans generally have repayment terms of 15, 20, or 30 years. Both the interest rate and the monthly payments (for principal and interest) stay the same during the life of the loan.

Interest Rate. An interest rate is the cost of borrowing money expressed as a percentage rate. Interest rates can change because of market conditions.

Loan origination fees.Loan origination fees are charged by the lender for processing the loan and are often expressed as a percentage of the loan amount.

Lock-in. Lock-in refers to a written agreement guaranteeing a home buyer a specific interest rate on a home loan provided that the loan is closed within a certain period of time, such as 30 or 60 days. Often the agreement also specifies the number of points to be paid at closing

Mortgage. A home mortgage is a document signed by a borrower when a home loan is made that gives the lender a right to take possession of the property if the borrowers fails to pay off on the loan

Points. Points are a one-time charge imposed by the lender, usually to reduce the interest rate of your loan. One point equals 1 percent of the loan amount. Points are usually paid in cash at closing. In some cases, the money needed to pay points can be borrowed, but doing so will increase the loan amount and the total costs.

Prepaid Interest. Your first regular home mortgage payment is usually due about 6 to 8 weeks after you close. Interest costs, however, start as soon as you close. The lender will calculate how much interest you owe for the part of the month in which you close (for example, if you close on August 16th, you would owe interest for 15 days – August 16 through 31).

Private Mortgage Insurance (Private MI or PMI). If your down payment is less than 20% of the value of the house, the lender will usually require mortgage insurance. The insurance policy covers the lender’s risk in the event you do not make loan payments. Typically, you will pay a monthly premium along with each month’s mortgage payment. Your private mortgage insurance can be canceled at your request, in writing, when you reach 20% equity in your home, based on your original purchase price, if your mortgage payments are current and you have a good payment history. By federal low your private mortgage insurance payments will automatically stop when you acquire 22% equity in your home, based on the original appraised value of the house, as long as your mortgage payments are current.

FHA, VA or RHS Fees. The Federal Housing Administration (FHA) offers insured mortgages and the Veterans Administration (VA) and the Rural Housing Service (RHS) offer mortgage guarantees. If you are getting a mortgage insured by the FHA or guaranteed by the VA or the RHS, you will have to pay FHA mortgage insurance premiums or VA or RHS guarantee fees. As with Private Mortgage Insurance, insurance premium payments will stop when you acquire 22% equity in your home. FHA fees are about 1.5% of the loan amount. VA guarantee fees range from 1.25%-2% of the loan amount, depending on the size of your down payment (the higher your down payment, the lower the fee percentage). RHS fees are 2.00% of the loan amount.

Homeowners Insurance. Your lender will require that you have a homeowners insurance policy (sometimes called hazard insurance) in effect at closing. The policy protects against physical damage to the house by fire, wind, vandalism, and other causes. This insured that the lender’s investment will be secured even if the house is destroyed.

Flood Determination Fee. If your home is in a flood hazard area where federally subsidized flood insurance is available, lenders cannot make a mortgage loan for your home unless you buy flood insurance. Your lender may charge a fee to find out whether the home is in a flood hazard area.

Title Search. The goal of a title search is to assure you and your lender that the seller is the legal owner of the property and that there are no outstanding claims or liens against the property that you are buying. A lawyer, an escrow or title company, or other specialist may perform the title search. Public real estate records can be spread among several local government offices, including surveyors, county courts, tax assessors, and recorders of deeds. Liens, records of deaths, divorces, court judgments, and contests over wills—all of which can affect ownership rights—must also be examined. If real estate records are computerized, the title search can be completed fairly quickly. In some cases, however, the title search may involve visiting courthouses and examining other public records and files, which is more time-consuming.

Title Insurance. Most lenders require a title insurance policy. This policy insures the lender against an error in the results of the title search. If a problem arises, the insurance covers the lender’s investment in your mortgage. The cost of the policy (a one-time premium) is usually based on the loan amount and is often paid by the buyer. However, you may negotiate with the seller to pay all or part of the premium. The title insurance required by the lender protects only the lender. To protect yourself against title problems, you may want to buy an “owner’s” title insurance policy.

The “Good Faith Estimate”. The Real Estate Settlement Procedures Act (RESPA) requires your home mortgage lender to give you a “good faith estimate” of all your closing costs within 3 business days of submitting your application for a loan, whether you are purchasing or refinancing the home. This is a good faith estimate, but the actual expenses at closing may be somewhat different.