Adjustable Rate Mortgage (ARM) - is a mortgage loan where the interest rate is periodically adjusted based on an index or market condition. This is done to ensure a steady margin for the lender, whose own cost of funding will usually be related to the index. Consequently, payments made by the borrower may change over time with the changing interest rate (alternatively, the term of the loan may change). The borrower benefits from this program if the interest rate falls and loses out if interest rates rise.

Alternative Financing - Mortgage instruments for both new and existing homes allow the buyer to qualify at a lower-than-market rate. Among these instruments are adjustable rate mortgages, graduated payment mortgage and buydown mortgage.

Assumable loans - A loan that can be picked up by a subsequent buyer for a small assumption fee. It saves thousands of dollars in closing costs and loan origination fees. Conventional loans that are assumable usually require a new application.

Closing Costs and Prepaids - Costs paid in addition to the down payment in closing day. These items can include attorney fees, loan origination, appraisal fee, credit report, document preparation, escrow fee, survey fee, tax escrow, insurance, 2 mos of PMI and sometimes the entire 1st year's PMI.

Creative Financing - Refers to the sale of existing property. The seller provides part of the financing, or the lender"wraps" a new mortgage around an old one.

Down Payment - A specified percentage of a home's value paid at closing.

FHA Loan - The Federal Housing Administration insures mortgages, allowing buyers to obtain financing with as little as 3% down and level payments at slightly below conventional rates for the 25 or 30-year life of the loan.

Market Rate - An estimate of the average rate being charged by the lenders.

Mortgage - An instrument that sets up the conditions of payment for a piece of property already transferred to the buyer.

Negative Amortization - The principal balance of the loan actually grows due to payments that are not enough to cover all the interest due. Often this accrues during the years of a variable rate or graduated payment mortgage when the payments are less than market value.

Prepayment Penalties - Fees charged to a borrower who pays off the loan balance before it is due.

Points - is 1% of the loan balance and is charged by the lender to issue a loan. Points can be a negotiable item between buyer and lender and usually range from 1 up to 7 or 8.

Private Mortgage Insurance - On conventional financing, including adjustable rate financing, lenders require that the borrower purchase PMI against default on loans with down payments of less than 20%.

Qualifying - A buyer must qualify for a loan. Usually the monthly payment cannot be more than 28% of the buyer's monthly gross income, and all of the buyer's monthly debt cannot total more than 33 to 35% of the monthly income.

Title - An instrument that shows the buyer has clear ownership of the property. A loan does not usually close until the title company has assured the lender that there are no hidden problems with a title to a piece of property.

Title Insurance - A policy that pays off the loan if a problem with the title arises.

VA Loan - The Veteran's Administration guarantees the first $27,500 of a home loan, allowing the lender to grant a mortgage loan to a qualified veteran with little or no down payment.