Consider this — you've found your property, and decided on Farm Credit as your lender.
But when it gets down to the nitty gritty of working out the loan, you may be overwhelmed by all the terminology and abbreviated references.
Your Farm Credit loan officer will help with the process, and lead you smoothly to closing. But it can be daunting. To help you understand the lingo, here are a few of the more common terms used in Farm Credit lending today.
Appraisal - A written opinion of a property's current market value prepared by a qualified appraiser.
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.
Closing Costs - Costs for services required to close a mortgage loan, such as title insurance, inspections, appraisals, loan closing fees and attorney's fees.
Cooperative Lender - A lender that is owned and controlled by its customers. Each member has one vote.
EIR (Effective Interest Rate) - 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.
Fixed-Rate Loan - A loan 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.
GFE (Good Faith Estimate) - 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.
Inspection - An inspection of a prospective home or structure done by a professional to establish the structural and mechanical integrity of the building.
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.
One-Time Close - Saves closing costs by combining your land loan, interim construction financing and permanent mortgage loan into one package.
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, and 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.
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.
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 voting rights in the co-op. The stock investment is repaid to the borrower when the loan is paid in full.
TLS (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.
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 changes in a standard index rate outside the control of the lender, such as the prime rate, LIBOR or Treasury bonds or notes.