When shopping for a loan program there are many things to consider. Here are a few common terms you should be familiar with to help you with the process.


All loans are categorized as either a conventional or government loan. The difference in these programs is that a government loan is insured or guaranteed by the government; a conventional loan is not.


Different loans require different types of income and asset documentation.Some of the programs that require less documentation are commonly referred to as no income verification, stated, no doc and no ratio test.

A fixed rate mortgage is one in which the interest rate and payments remain the same (unchanged) for the life of the loan — usually 15 or 30 years. The interest rate on a fixed rate loan is usually higher then that for an ARM because the lender is having to commit to lending the borrower money over many years at a fixed rate.

You don't have to worry about your interest rate going up.

You don't have to worry about your principal and interest going up.

"Peace of mind" — no surprises and no uncertainty.

Easy to budget and plan your finances.

Unable to take advantage of declining interest rates without having to incur the expense of refinancing.

Interest rate may be a little higher than an adjustable rate mortgage rate because the lender is committing to the rate for a long period of time — usually 15 or 30 years.

An adjustable interest rate mortgage (ARM) is one in which the interest rate adjusts periodically based on the movement of an index. An index is a pre-selected economic indicator used to establish interest rates. Various indexes exist: LIBOR, 11th District COFI, and the T-Bill, to name a few. The index, adjustment schedule, and interest rate adjustments can vary depending upon the loan program.

Adjustable rate mortgage loans start with a lower interest rate.

If you are a first-time home buyer or are "trading up" to a more expensive home, you may be able to qualify for more loan.

For accepting the risk of a possible increase in interest rate, lenders often offer "teaser rates" with adjustable rate mortgage loans. A teaser rate is a rate below the market rate.

You are able to take advantage of declining interest rates without having to refinance your loan.

Your interest rate may increase.

Your monthly payments may increase.

Changing rates/payments make it more difficult for you to budget your finances.

Some ARM loans have the possibility of amortizing negatively.