A, B, C    

Adjustable Rate Mortgage (ARM): A mortgage where the interest rate is not fixed for the life of the loan. These mortgages adjust periodically based on an index that changes with market conditions. The rate of interest is the sum of the index plus a margin (the margin remains fixed for the life of the loan). Most ARMs have periodic interest rate and payment caps as well as life caps.

Amortize: Gradual payment of a debt through regular installments that cover both interest and principal

Annual Percentage Rate (APR): A measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other costs over the life of the loan. Lenders generally follow the same rules to ensure the accuracy of the annual percentage rate, which provides Members with an even comparison on the cost of loans, including mortgage plans.

Appraisal Report: Estimate of real estate value. An appraisal evaluates the property at a given time based on facts regarding the location, improvements, neighborhood, and comparable sales.

Balloon Payment: The final payment of a mortgage which is larger than the regular payment; it usually eliminates the debt.

Closing Cost: Expenses incurred by the buyer and the seller in a real estate or mortgage transaction. There can be non-recurring costs that include points, appraisal fees, etc., that are a one time charge or recurring costs such as taxes and insurance that incur while the new buyer/borrower owns the real estate.

Conforming Loan Amount: Loan amounts less than jumbo loan amounts as defined by the Department of Housing and Urban Development (HUD). Current conforming loan amount is equal or less than $417,000.

D, E, F    

Debt Ratios: Ratios between income and debt used to underwrite loans. Each loan program has determined ratios that borrowers need to have to be within the guidelines of the program.

Deed of Trust: An instrument given by the borrower to a third party (trustee) vesting title to the property in the trustee as security for the borrower's repayment of the mortgage loan.

Escrow: The entity that coordinates the transaction with all parties involved and ensures the disbursement of all funds to all parties of the transaction.

Fair Isaac Score: A score on credit reports that is used by lenders to determine credit worthiness.

Fannie Mae: (Federal National Mortgage Association): FNMA is one of the major secondary market investors that purchases loans from mortgage companies and other depository institutions. The company is a private corporation and its stock is traded on the New York Stock Exchange.

Freddie Mac: Federal Home Loan Mortgage Corporation. A federal agency purchasing first mortgages, both conventional and federally insured, from members of the Federal Reserve System and the Federal Home Loan Bank System.

Flood Insurance: Insurance against flood damage. May be required by lender if subject property is in a flood zone.

Foreclosure: A proceeding in or out of court, to eliminate all rights, title, and interest, of the owner(s) of a property in order to sell the property and satisfy a lien against it.

G, H, I    

Grant Deed: The document transferring ownership interest in a property.

Hazard Insurance: Insurance on a property against fire and similar risk.

Home Owner Association Dues (HOA): An association of people who own homes in a given area for the purpose of improving or maintaining the quality of the area.

Impounds: A monthly payment, added to the monthly principal and interest payment that is directly deposited into an escrow account. These funds will be used to payoff property taxes and hazard insurance premiums when they come due.

Index: A published rate or benchmark measure of current interest rate levels used to calculate periodic changes in rates charged on adjustable rate mortgages. You should ask your lender how the index for any ARM you are considering has changed in recent years and where it is reported.

Interest Rate: The charge for borrowed money, generally expressed as a percentage of the principal amount borrowed.

J, K, L, M, N    

Loan-To-Value (LTV): The ratio of the mortgage loan amount to the properties appraised value (or the selling price whichever is less).

Manufactured Homes: A dwelling unit built on a permanent chassis and attached to a permanent foundation.

Margin: The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Mortgage: A lien or claim against real property given as security for a loan.

Mortgage Insurance (MI): Abbreviation for mortgage insurance. Insurance issued by a company, which insures the lender against loss in the event that the borrower defaults on the mortgage

Negative Amortized Mortgage: Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost not covered by the monthly payment is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results if monthly payments are not high enough to cover the interest due.

Non-Conforming (Jumbo): Also known as jumbo loans. Loans that are above the loan limits set by the Department of Housing and Urban Development (HUD). Currently any loan over $417,000 is considered jumbo.

Non-Owner-Occupied: Properties that are not occupied by the owner, such as rental properties. Not a second home.

O, P, Q, R, S    

Points: A point is equal to one percent of the principal amount of your mortgage.

Pre-Approval: A guarantee to lend to the borrower. Lender needs only to review the subject property.

Pre-Qualification: An estimate of what a borrower can afford, not a guarantee to lend.

Primary Residence: Considered the location of residency.

Planned Unit Development (PUD): A group of five or more single-family residences that share some common area.

Reverse Mortgages: A special program for the elderly that provides income until death. Payment requirements are arranged through the increase in the principal amount of the loan.

Second Home (Vacation Home): Commonly known as a vacation home. This home is not rented and is occupied by the owners occasionally.

Single Family Residence (SFR): A residential home that is not attached physically to another home and shares no common area with any other properties.

Sub-Escrow Fee: A fee charged by the title company. This fee is for the collection of any demands that are ordered on liens that need to be paid off.

T, U, V, W, X, Y, Z    

Tax-Service Contract: This is a contract for the life of the loan that lenders will require. This contract is with a company that will inform the lender of any changes of status about the taxes on the subject property.

Title: Often used interchangeably with the word ownership. It indicates the accumulation of all rights in property by the owner and others.

Uniform Residential Loan Application (1003): An application developed by Fannie Mae and Freddie Mac that are widely used in the mortgage industry.