Explanation of Terms

1003 (pronounced "ten-oh-three").

The 1003 (pronounced "ten-oh-three") is the standard, four-page mortgage loan application form. The purpose of the 1003 is to collect complete information about the borrower and co-borrower (if applicable), including employment information and asset/debt information. It also collects information about the property being purchased or refinanced, and the type of mortgage loan being used.

Adjustable Rate Mortgage Loan (ARM)

An adjustable rate mortgage loan is a mortgage loan that has an adjustable interest rate over the life of the loan. Adjustable rate mortgage loans typically start out with lower interest rates than comparable fixed rate mortgage loans, because adjustable rate mortgage loans have less long term stability.

An adjustable rate mortgage loan's introductory interest rate is fixed for a certain period of time, typically 3, 5, 7 or 10 years, after which the interest rate adjusts periodically according to where national interest rates are at the time of the adjustment point. After the initial introductory period is over, adjustable rate mortgage loans typically adjust their interest rates every six months or every year.

When an adjustable rate mortgage loan's interest rate is adjusted, the interest rate can go higher or lower than it was previously, or it can remain the same. The new interest rate will be determined by what national interest rates are doing at the time of the adjustment point (i.e. if national interest rates are going up the adjustable rate mortgage loan's interest rate will probably go up, if they're going down the adjustable rate mortgage loan's interest rate will probably go down). Adjustable rate mortgage loans typically have caps to limit how much the interest rate can go up or down each adjustment period, and how much the interest rate can go up or down from where it originally started.

Bad Credit (Subprime) Mortgage Loan

A bad credit mortgage loan (or "subprime" mortgage loan) is a specialized mortgage loan designed for customers with credit issues. Bad credit mortgage loans are easier to qualify for than regular mortgage loans, because they have more flexible credit and income requirements. There are various types of bad credit mortgage loan programs, but most of them tend to be adjustable rate mortgage loans as opposed to fixed rate mortgage loans.

This is because bad credit mortgage loans usually have higher interest rates and higher down payments than regular mortgage loans, so most people prefer to use a bad credit mortgage loan simply to get into a home and help rebuild credit. Once they've been in the home for a year or two, people typically refinance the bad credit mortgage loan with a regular loan.

Closing Costs

Closing costs are fees paid at closing that form the effective cost of a mortgage loan. Closing costs typically include the following items: a loan origination fee, a processing fee, an appraisal fee, title search and insurance fees, taxes, credit report fees, and any other costs associated with the mortgage.

The purpose of the closing cost fees is to pay the parties responsible for handing the transaction from start to finish. Closing costs typically total several percent of the total loan amount, though that varies according to the type of mortgage and the degree of difficulty involved.

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