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FAQ

Glossary of Terms

A B C D E F G H I J K L M N O P Q R S T U V W Y Z

Acceleration Clause – A provision in a mortgage that gives a lender the right to demand payment of the entire principal balance if the loan goes into default.

Adjustable Rate Mortgage (ARM) – A mortgage that does not have a fixed rate. An adjustable rate mortgage, commonly referred to as an ARM, is a loan type that allows the lender to adjust the interest rate during the term of the loan.  Generally, these changes are determined by a margin and an index so that the interest rate changes up or down, and are based on market conditions at the time of the change.  Most often these interest rate changes are limited by a rate change cap and a lifetime cap.  If you apply for an adjustable rate mortgage, the lender is required to provide you with an ARM Program Disclosure which spells out the terms of the loan.

Amortization - A loan repayment plan, which enables the borrower to reduce his debt gradually through monthly payments of principal and interest.

Amortization Schedule - A time table for repayment of a mortgage loan. An amortization schedule shows the amount of each payment applied to interest and principal and shows the remaining balance after each payment is made.

Amortization Term - The amount of time it would take to repay a loan, usually expressed in number of months. For example, for a 30 year fixed rate mortgage, the amortization term is 360 months.

Annual Percentage Rate (APR) – To make it easier for consumers to compare mortgage loan interest rates, the federal government developed a standard format called an "Annual Percentage Rate" or APR to provide an effective interest rate for comparison shopping purposes.  Some of the costs that you pay at closing are factored into the APR for ease of comparison.  Your actual monthly payments are based on the periodic interest rate, not the APR.

Application - The process of applying for a consumer loan or mortgage. The term "application" generally refers to a form that is used to collect financial information from a borrower by a lender.

Appraisal – An official valuation, performed by a qualified individual to determine the market value of a house. In order to verify that the value of your home supports the loan amount you request, an appraisal will be ordered by the lender. The appraisal is generally performed by a professional who is familiar with home values in the area and may or may not require an interior/exterior inspection of the home. The fee for the appraisal is commonly passed on to the borrower by the lender. For our comparison purposes, the appraisal fee is a third party fee.

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Balloon Mortgage - A short-term, fixed-rate loan, which involves smaller payments for a certain period of time and one large payment for the entire balance due at the end of the loan term.

Balloon Payment - The final payment that is made on a balloon loan on its maturity date and which pays the loan in full.

Bi- Weekly Payments - A loan payment that reduces the debt every two weeks instead of monthly. The 26 biweekly payments are each equal to one-half of the monthly payment. The result is a faster loan balance reduction with substantial savings in interest.

Bridge Loan – A bridge loan is generally a loan that is secured by a borrower's current residence to obtain the funds needed to purchase a new home if the current residence will not be sold prior to the purchase of a new home.

Buydown - A process that allows a borrower to obtain a lower interest rate on a mortgage by paying points to a lender.

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Cash Out Refinance - A refinance loan that provides the borrower with cash that exceeds the amount required to pay off existing mortgage(s) on the home and may include closing costs associated with refinancing.  This additional cash can be used by the borrower for any purpose.

Chain of Title - A history of all documents, including conveyances and encumbrances, which affect the title to a parcel of property, starting with the earliest existing document and ending with the most recent.

City/County Tax Stamp - A tax that is required in some municipalities if a property changes hands or a new mortgage is obtained.  The amount of this tax can vary with each state, city and county.

Closing – A meeting of the parties involved in a real estate transaction to finalize the process and transfer ownership of a house when you sign loan papers and a deed is recorded.  In the case of a purchase, a closing usually involves the seller, the buyer, the real estate broker and the lender.  In the case of a refinance, the closing involves the borrower and the lender.

Closing Costs – The total cost of all the items that must be paid at closing as it relates to a new mortgage.

Closing Statement - Also referred to as the HUD-1 or the settlement statement, this is the document that provides line by line detail of the financial details related to a specific real estate transaction such as the fees paid by the seller and the buyer for a purchase transaction or the fees paid by the borrower for a refinance.

Collateral - Property pledged as security for a debt. The borrower risks losing the collateral if the debt is not repaid according to the terms of the loan contract.

Commitment Letter - A written offer from a lender to provide financing to a borrower.  The commitment letter, also called a loan commitment, states the terms under which the lender agrees to provide financing to the borrower.

Compareables – Comparables, often called “comps”, are used for comparative purposes in the appraisal process and are properties that are very similar to the property being appraised. They have been sold recently and have approximately the same size, location and features. Comparables help the appraiser determine the approximate fair market value of the subject property.

Condominium - A form of real estate ownership in which each owner has title to a specific unit in a project and joint ownership in the common areas of the project.

Conforming Loan - A loan that does not exceed the maximum loan amount allowed for the most common mortgage investors. Loans that exceed this amount are referred to as "jumbo mortgages". The cost of obtaining a jumbo mortgage is generally higher than the cost of obtaining a conforming mortgage due to the risk.

Construction Loan - A short term loan, usually 6 months, that is used to finance the construction of a new home.  During the term of the loan, the lender makes payments to the builder or title company as the work progresses and the borrower makes interest only payments on the funds that have been disbursed to the builder.  Typically, the construction loan is refinanced into a permanent loan after the home is completed.

Conventional Loans – Mortgage loans other than those insured or guaranteed by a government agency such as the FHA (Federal Housing Administration), or the Rural Development Services (formerly known as the Farmers Home Administration or FMHA).

Credit History - A record of a person’s debt history, including all open, closed, fully repaid obligations, collections, late payments and bankruptcies. A credit history helps a lender to determine whether a potential borrower has satisfactory history of repaying debts in a timely fashion.

Credit Report – Report on how timely you pay bills, debt you are carrying, and your current monthly payments. Credit history is important when a lender considers your loan application as it will show a borrowers creditworthiness and the chance of whether they will default.

Credit Disability Insurance – A type of insurance, often bought by
borrower(s) that will help the borrower make their monthly loan payments should they become unable to work for an extended period of time. Different conditions apply to different types of disability insurance and you should consult with a loan officer on the terms and conditions offered with the credit union.

Credit Life Insurance - A type of insurance, often bought by borrower(s) that will pay off the debt if the borrower dies while the policy is in force. Consult a loan officer for the terms and conditions offered with the credit union.

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Deed - The written instrument that transfer ownership of a property from the seller to the buyer.  The deed is recorded at the local courthouse, usually the Register of Deeds, so that the transfer of ownership is part of the public record.

Deed in Lieu - A process that allows a borrower to transfer the ownership of a property to the lender in order to avoid loss of the property through foreclosure.

Default - A breech of an agreement with a lender such as the failure to make loan payments in a timely manner or maintain insurance on the collateral for the term of the loan.

Delinquency - The failure to make payments on debts when they are due.

Down Payment - The portion of the purchase price of the property, which the borrower will be paying in cash, rather than including it in the mortgage amount. For example, if the purchase price of the property is $100,000.00 and a mortgage amount is $80,000.00, the down payment would be 20%.

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Ernest Money - A sum of cash paid to a seller by a buyer prior to the closing to show that the buyer is serious about buying the house.  The earnest money is deducted from the purchase price at closing and is not an additional cost.

Easement - A right of way giving persons, other than the owner, access to or over a parcel of property.

Emcumbrance - Anything that affects the title to a property such as a mortgage, judgement, or easement.

Equity - An owner's financial position in a property.  Equity is the difference between the property's value, often taken from an appraisal or tax bill, and the amount that is owed on mortgages. For example, if the property is valued at $100,000.00 and the balance owed on the mortgage is $50,000.00, there would be 50% equity in the property ($50,000/$100,000 = 50%).

Escrow – The holding of money or documents by a neutral third party before closing on a property. It can also be an account held by the lender (or servicer) where a homeowner pays money for property taxes and hazard insurance.

Escrow Analysis - A periodic review of escrow accounts to determine if the current monthly deposits will provide sufficient funds to pay property taxes, hazard insurance and any other bills when they come due.

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Fair Market Value - The highest price that a willing buyer would pay, and the lowest price that a willing seller would accept.

Fee Simple - Absolute ownership of real property; the greatest possible interest a person can have in real estate.

Finance Charge - Is any fee representing the cost of credit, or the cost of borrowing. It is interest accrued on, and fees charged for, some forms of credit. It includes not only interest but other charges as well, such as financial transactions.

First Mortgage - A mortgage that is the first loan recorded in the public record and generally the primary loan against a property.

Fixed Rate Mortgage – Loans that generally have repayment terms of 10, 15, 20, 25 or 30 years. Both the interest rate and the monthly payments (for principal and interest) stay the same during the life of the loan.

Float - A term that describes the interest rate for a loan that has not yet been guaranteed by a lender.  If the lender has not yet guaranteed or locked the interest rate, it is floating and could change prior to closing.

Flood Certification - An inspection to determine if a property is located in an area prone to flooding also known as a flood plain. The federal government, also known as FEMA, determines whether an area is in a flood plain. Lenders generally rely on the flood certification to determine if flood insurance will be required in order to obtain a mortgage. If is it determined that the property is in a flood plain, flood insurance is required along with hazard insurance when doing any type of mortgage.

Flood Insurance - Insurance that protects a homeowner from the cost of damages to a property due to flooding or high water. It is required by law that properties located in areas prone to flooding have flood insurance. The federal government, also known as FEMA, determines whether an area is prone to flooding and considered to be in a flood plain.

Foreclosure - The legal process in which a borrower's ownership of a property is dissolved due to default.  Typically, the property is sold at a public auction and the proceeds are used to pay the loan in full.

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Good Faith Estimate - A written estimate of the closing costs the borrower will have to pay at closing.  Under the Real Estate Settlement Procedures Act (RESPA), the lender is required to provide this disclosure to the borrower within three days of receiving a loan application.

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Hazard Insurance (also referred to as Homeowner’s Insurance) - Insurance that protects a homeowner against the cost of damages to a property caused by fire, windstorms, and other common hazards.

Home Equity Line of Credit (HELOC) - A loan secured by real property, usually in a subordinate position, that allows the borrower to receive the loan proceeds in the form of multiple advances up to a limit that represents a maximum percentage of the borrower's equity in a property.

Home Equity or Second Mortgage Loan - A loan secured by a subordinate mortgage on one's principal residence, generally to be used for some non-housing expenditure. A traditional home equity loan provides lump-sum proceeds at the time the loan is closed.

Home Inspection - A complete and detailed inspection that examines and evaluates the mechanical and structural condition of a property. A complete and satisfactory home inspection is often required by the homebuyer and can be compared with an appraisal.

Homeowner’s Insurance - Insurance that protects a homeowner against the cost of damages to property caused by fire, windstorms, and other common hazards. Also referred to as hazard insurance.

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Insurance – Hazard insurance and title insurance are required when getting a mortgage. Mortgage insurance also may be required.

Interest Rate – The price paid for borrowing money, usually stated in percentages and as an annual rate.

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Lock-in – A written agreement guaranteeing a homebuyer a specific interest rate on a home loan provided that the loan is closed within a certain period, such as 30, 45, 60 or 90 days. Sometimes the agreement also specifies the number of points to be paid at closing.

Loan Origination Fee – Fees charged by the lender for processing a loan.

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Mortgage – A contract, signed by a borrower when a home loan is made, that gives the lender the right to take possession of the property if the borrower fails to pay off, or defaults on, the loan.

Mortgage Insurance – see Private Mortgage Insurance (PMI)

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PITI – Monthly payment consisting of principal, interest, property taxes, and hazard insurance.

Points (also called discount points) – One point is equal to 1 percent of the principal amount of a mortgage loan. For example, if a mortgage is $200,000, one point equals $2,000. Lenders frequently charge points in both fixed-rate and adjustable-rate mortgages to cover loan origination costs or to provide additional compensation to the lender. Points are paid usually on the loan closing date and may be paid by the borrower or the home seller, or split between the two parties. In some cases, the money needed to pay points can be borrowed, but increases the loan amount and the total costs. Discount points (sometimes called discount fees) are points that the borrower voluntarily chooses to pay in return for a lower interest rate.

Prepayment Clause – Provision permitting you to pay off mortgage early to reduce interest costs. Some lenders charge a penalty for prepayment.

Principal – Amount you borrow, excluding interest and points.

Private Mortgage Insurance (PMI) – Protects the lender against a loss if a borrower defaults on the loan. It is a payment usually required of a borrower for loans in which a down payment usually required of a borrower for loans in which a down payment is less than 20 percent of the sales price or, in a refinancing, when the amount financed is greater that 80 percent of the appraised value. When you acquire 20 percent equity in your home, PMI is cancelled. Depending on the size of your mortgage and down payment, these premiums can add $100 to $200 per month or more to your payments.

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Quit Claim Deed - A deed that transfers, without warranty, whatever interest or rights a grantor may have at the time the transfer is made.

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Rate - The annual rate of interest for a loan, which is also called the interest rate.

Rate Change Cap - The maximum amount that an interest rate can change, either at an adjustment period or over the entire life of the loan.  Commonly associated with an adjustable rate mortgage (ARM).

Rate Lock - An agreement by a lender to guarantee the interest rate offered for a mortgage provided that the loan closes within the specified period of time.

Real Estate Settlement Procedures Act (RESPA) - A consumer protection law that requires mortgage lenders to give borrowers advance notice of closing costs in the form of a Good Faith Estimate.

Recording - The entering in a book of public record the details of a properly executed legal instrument that affects title to real property, making it a part of the public record.

Recording Fees - A fee charged by the local government to record mortgage documents into the public record so that any interested party is aware that a lender has an interest in the property.  For our comparison purposes, a recording fee is considered to be a tax or other unavoidable fee.

Refinance - The process of paying off any existing mortgage(s) on a home with a new mortgage loan.

Remaining Balance - The amount of principal owed on a loan that has not yet been fully repaid.

Remaining Term - The number of payments left to be made on a loan before it is fully amortized (paid in full).

Rent Loss Insurance - An insurance policy that protects a landlord against loss of rent or value due to natural casualties that renders the premises unsuitable for use, and therefore excuses the tenant from paying rent.

Repayment Plan - An agreement between a lender and a borrower, made to help the borrower repay delinquent installments.

Rescission - The cancellation of a contract by the operation of a law or by mutual consent. In some circumstances, borrowers have the right to cancel a transaction within three business days after closing.

RESPA - See Real Estate Settlement Procedures Act.

Revolving Credit - A credit agreement (typically a credit card) that allows a customer to borrow against a pre-approved credit line when purchasing goods and services. The borrower is only billed for the amount that is actually borrowed plus any interest due.

Right of First Refusal - A contract provision that requires a property owner to give another party the first opportunity to purchase or lease the property before it is offered to others.

Right of Survivorship - In joint tenancy, the right of surviving joint tenants to acquire the interest of a deceased joint tenant.

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Sales Contract - An agreement between a buyer and seller to purchase real estate.  A sales contract, also known as an offer to purchase or a binder, secures the right to purchase real estate upon agreed terms for a limited period of time.  If the buyer changes his mind or is unable to purchase, the earnest money that was paid is forfeited unless the binder expressly provides that it is to be refunded.

Second Mortgage - A loan that has a lien position subordinate to the first mortgage.

Secured Loan - A loan that is backed by collateral such as an home, automobile, motorcycle, boat or recreational vehicle.

Security - The collateral offered to a lender in exchange for a loan.  When a lender provides a mortgage, you provide your home as the security.  This means that if payments are in default, the lender has the right to take title to the property.

Security Interest - The lender's right to take property that has been offered as security.

Servicer - A company that collects principal and interest payments from borrowers and manages borrowers' escrow accounts. The servicer may or may not be the original lender.

Settlement - A meeting of parties involved in a real estate transaction to finalize the process. In the case of a purchase, the settlement usually involves the seller, the buyer, the real estate broker and the lender. In the case of a refinance, the settlement involves the borrower and the lender. Sometimes referred to as the closing or the close of escrow.

Settlement (or Closing) Costs – Fees paid at a loan closing. May include application fees; title examination, title insurance, and property survey fees; fees for preparing deeds, mortgages, and settlement documents; attorneys’ fees; recording fees; estimated costs of taxes and insurance; and notary, appraisal, and credit report fees. Under the Real Estate Settlement Procedures Act, the borrower receives a “good faith” estimate of closing costs within three days of application. The good faith estimate lists each expected cost as an amount.

Settlement Statement - Also referred to as the HUD-1 or the closing statement, this is the document that provides line by line detail of the financial details related to a specific real estate transaction such as the fees paid by the seller and the buyer for a purchase transaction or the fees paid by the borrower for refinances.

State Tax Stamps - A tax charged by some state or local governments at the time of transfer of real estate title from one owner to another.  For our comparison purposes, these fees are considered to be a tax or other unavoidable fee.

State/Local Tax Fees - A tax charged by some state or local governments at the time of transfer of real estate title from one owner to another.  For our comparison purposes, these fees are considered to be a tax or other unavoidable fee.

Subordinate Financing - Any mortgage or other lien that has a lower priority than that of the first mortgage.

Survey - A fee associated with obtaining a precise measurement of a piece of property by a licensed surveyor.  The survey is typically a written map of the property showing locations of buildings and boundaries.  In some states, a survey is required by a title company to issue a title insurance policy.  For our comparison purposes, a survey fee is considered to be a third party fee and may be included in the title insurance fee by some lenders.

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Tangible Property - Real estate and other property of value which can be seen and touched.

Tax Certificate - A tax charged by some state or local governments at the time of transfer of real estate title from one owner to another. For our comparison purposes, these fees are considered to be a tax or other unavoidable fee.

Tax Service Fee - A fee charged to a borrower by a lender so that another company will assume responsibility for verifying the amount of real estate taxes due and that taxes have been paid over the life of the loan.  For our comparison purposes, a tax service fee is considered to be a third party fee, however, some lenders may not charge for this service.

Term - The loan term is the number of months that you will make monthly payments. If the loan term is the same as the payment calculation term, you will pay the loan in full during the loan term and no balance will be due. If the payment calculation term is greater than the loan term, a balance or "balloon payment" may be due at the end of the loan term.

Third Party Fees - Third party fees are usually fees that the lender will collect and pass on to the person who actually performed the service.  For example, an appraiser is paid the appraisal fee, a credit bureau is paid the credit report fee and a title company or an attorney is paid the title insurance fees. Fees that we consider third party fees include the appraisal fee, the credit report fee, the settlement or closing fee, the survey fee, tax service fees, title insurance fees, flood certification fees, and courier/mailing fees.

Title - A legal written instrument evidencing a person's lawful possession of a property.

Title Company - A company that specializes in examining titles to real estate and issuing title insurance.

Title Insurance - An insurance policy that protects the lender (and sometimes the property owner as well) against loss due to disputes over the ownership of a property and defects in the title that were not found in the search of the public record.  For our comparison purposes, the title insurance cost is considered to be a third party fee.

Title Search - An examination of the public title records to determine the legal ownership of a property, and to ensure that there are no liens, encumbrances or other claims outstanding.Title Search Fee - A fee charged by a title company or attorney in some states to cover the cost of searching the public record to make sure the buyer is purchasing a house from the legal owner and there are no liens, overdue assessments, or other claims filed that would adversely affect the transfer of the title.  For our comparison purposes, a search fee is considered to be a third party fee and may be included in the title insurance fee by some lenders.

Total Closing Costs - This is the total of all the items that must be paid at closing related to your new mortgage. Since the exact charges for some of these items cannot be obtained until the time of closing, the figure may only be an estimate.

Total Debt Ratio - A standard calculation performed by mortgage lenders to determine if a borrower qualifies for a specific loan type.  It is calculated by dividing the monthly housing expense (Principal, Interest, Taxes and Insurance plus all other monthly debt obligation) by the borrower's monthly gross income.  Also referred to as a back end ratio or a bottom ratio.

Transfer of Ownership - Any legal method by which the ownership of property changes hands.

Transfer Tax - A tax charged by some state or local governments at the time of transfer of real estate title from one owner to another. For our comparison purposes, these fees are considered to be a tax or other unavoidable fee.  Treasury Bills - An index used to establish interest rates for adjustable rate mortgages. It is based on the interest rate paid to private investors by the US Government to obtain funding for the national debt and other expenses. Sometimes called T-bills, they are available in denominations of 3-months, 6-months and 1-year. The 3-month and 6-month Treasury bills are auctioned every Monday, and the 1-year Treasury bills are auctioned on Tuesday. The resulting figures are released to the public the next day. This index can have either a weekly or a monthly value.

Treasury Bond - Negotiable, long-term U.S. Government debt obligation with a maturity of ten years or longer, issued in minimum denominations of $1,000.

Treasury Index - An index that is used to determine interest rate changes for some adjustable-rate mortgage (ARM) programs. It is often based on the U.S. Treasury's daily yield curve.

Treasury Note - An intermediate U.S. Government security with a maturity of 1 to 10 years. Denominations range from $1,000 to $1 million or more. The notes are sold by cash subscription, in exchange for outstanding or maturing government issues, or at auction.

Treasury Securities - An index used to establish interest rates for adjustable rate mortgages. It is based on the yields of actively traded 1-year, 3-year, or 5-year Treasury Securities adjusted to constant maturities. The Treasury Security indices are calculated by the U.S. Treasury and reported by the Federal Reserve Board. These indices have either a weekly or a monthly value. The weekly indices are released on Monday afternoon for the previous week. Monthly values for these indices are generally available on the first Monday of the following month.

Truth in Lending Act - Also known as Regulation Z, this federal regulation requires a lender to provide borrowers with a disclosure estimating the costs of the loan including your total finance charge and the Annual Percentage Rate (APR) within three business days of the application for a loan.  This act is designed to provide consumers with a standard method of comparing the financing costs from lender to lender.

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Underwriting - Detailed process of evaluating a borrower's loan application to determine the risk involved for the lender. Underwriting usually involves an in-depth analysis of the borrower's credit history, as well as an examination of the value and quality of the subject property.

Underwriting Fee - A fee charged by some lenders to cover the cost of the lender's analysis of the risk associated with a loan. For our comparison purposes, an underwriting fee is considered to be a lender fee.

Unsecured Loan - A loan that is not backed by collateral, such as a auto, boat, camper, motorcycle, and home.

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Wire Transfer Fee - A fee charged by some lenders to cover the cost of wiring the mortgage funds to the appropriate parties, such as a title company or attorney, so that they are available for closing.  For our comparison purposes, a wire transfer fee is considered to be a third party fee.  However, some lenders may not charge for this service.

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Zoning - The local government's specifications for the use of property in certain areas.

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