A
Appraisal
A written opinion of a property's current market value prepared by an appraiser.
Association
The term used for each cooperative lending organization that is part of the Farm Credit System network of lenders.
Glossary
B
Balloon Note
A long-term loan, often a mortgage, that has one large payment (the balloon payment) due upon maturity. A balloon note often has the advantage of low payments, thus requiring very little capital outlay during the life of the loan.
Basis Point
Basis points are used to describe the movement of interest rates or yields in hundredths of a percent. A basis point is .01 percent, thus 100 basis points equal one percent.
C
Closing Costs
The total costs of completing the transfer of ownership of property, other than the purchase price, such as fees for appraisal, title, tax and insurance prepayment, loan origination and real estate commission.
Cooperative Lender
A business that is owned and controlled by the people who use it. Borrowers have democratic control: one member, one vote. In a well-run cooperative, earnings are returned to the owners in the form of patronage.
E
Effective Interest Rate (EIR)
Similar to the consumer APR, or annual percentage rate, the effective interest rate is an expression of a customer's total cost of borrowing in the first 12 months of a loan, including stock purchase, origination fees and interest, expressed as an interest rate.
Eligible Borrower
A borrower who is eligible for financing according to Farm Credit regulations. Most persons or legal entities that are involved, or plan to become involved, in agriculture or in the ownership of agricultural or rural property are eligible to apply for a loan. Loan approval and terms are subject to the creditworthiness of the applicant.
F
Fixed-rate Loan
Loans in which the interest rate is fixed for a pre-established time frame. The fixed-rate period can run for as long as the full term of the loan, or for some fixed period shorter than the full term.
G
Good Faith Estimate (GFE)
A document that discloses estimates of closing costs that borrowers are required to pay at loan closing. It is required by federal law to be delivered to home loan applicants within three days of receipt of an application.
I
Inspection
An inspection of a prospective home or structure done by a professional to establish the structural and mechanical integrity of the building.
L
LIBOR (London Interbank Offered Rate)
The interest rate that international banks charge each other for short-term interbank loans. It is usually quoted for 1-, 3- and 6-month periods, and is a key reference rate used throughout the world financial markets. LIBOR is typically used as the base index for short-term loans and adjustable-rate mortgages. LIBOR rates are published daily in the Wall Street Journal.
Lot Loan
A lot loan is designed for people who wish to finance an unimproved property on which they intend to build a home in the future. Limited agricultural activity may occur on the property, but no intensive farming.
O
One-time Close
Saves closing costs by combining your land loan, interim construction financing and permanent mortgage loan into one package.
P
Patronage
The portion of a cooperative's net earnings, after payment of all operating expenses, that are distributed to the cooperative's members on a pro rata basis. Patronage refunds are a unique economic feature of cooperatives. They are paid in cash, allocated equities, stock or any combination of these. These capital distributions help lower the effective cost of borrowing from a cooperative.
Preapproval
A general term that means a borrower has completed a loan application and has provided their debt, income and savings information, which an underwriter has reviewed and approved prior to an actual transaction.
Prequalification
A preliminary step in the loan application process, a prequalification is a lender's written opinion of the ability of the borrower to qualify for a particular loan amount. The amount prequalified by the lender is determined based on inquiries into the borrower's credit history, debt, income and savings.
Prime Rate
A short-term, variable interest rate quoted by commercial banks as an indication of the rate being charged on loans to its best commercial customers. Even though banks frequently charge more and sometimes less than the quoted prime rate, it is a benchmark against which other variable rates are measured.
R
Rate Lock
An option exercised by the borrower, at the time of the loan application or later, to "lock in" the rates and points prevailing in the market at that time. The lender and borrower are committed to those terms, regardless of what happens between that point and the established closing date.
S
Stock
Each Farm Credit borrower becomes an owner of the cooperative through the purchase of stock equal to 2 percent of their loan amount, not to exceed $1,000. In most cases, funds for the stock can be included in the loan. Ownership of this stock gives borrowers the right to participate in the business affairs of the cooperative. The stock investment is repaid to the borrower when the loan is paid in full.
T
Truth In Lending Statement
A federal law, the Truth in Lending Act of 1968, requires lenders to fully disclose, in writing, the key terms of the lending arrangement and all the fees, terms and conditions associated with a loan.
V
Variable-Rate Loan
Refers to any type of loan that does not have a fixed rate of interest over the life of the loan. Such a loan is adjusted periodically, usually according to a standard market rate outside the control of the bank, such as the prime rate, LIBOR or Treasury bonds or notes.