Sand Dollar Title Group, Inc.

Terminology
Here Are Some Helpful Terms Used Throughout The Real Estate, Mortgage, and Title Processes.

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

401(k)/403(b)
An employer-sponsored investment plan that allows individuals to set aside tax-deferred income for retirement or emergency purposes. 401(k) plans are provided by employers that are private corporations. 403(b) plans are provided by employers that are not for profit organizations.

401(k)/403(b) Loan
Some administrators of 401(k)/403(b) plans allow for loans against the monies you have accumulated in these plans. Loans against 401K plans are an acceptable source of down payment for most types of loans.

Abstract (Of Title)
Summary of public records relating to the title to a particular piece of land. An attorney or title insurance company searcher reviews an abstract of title to determine whether there are any title defects which must be cleared before a buyer can purchase clear, marketable, and insurable title.

Acceleration Clause
Standard clause in a mortgage that requires the balance of the loan to become due immediately, if regular mortgage payments are not made or for breach of other conditions of the mortgage.

Adjustable-Rate Mortgage (ARM)
Interest rate is not fixed, but changes during the life of the loan in line with movements in an index rate. You may also see ARMs referred to as AMLs (adjustable mortgage loans) or VRMs (variable-rate mortgages).

Adjustment Date
The date the interest rate changes on an adjustable-rate mortgage (ARM).

Adjustment Period
Length of time for which the interest rate is fixed on an ARM. After that period it will be adjusted. Typically once (T-Bill) or twice a year (LIBOR), depending on the index.

Agreement of Sale
A.K.A. Purchase Agreement or Sales Agreement. Contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties.

Alienation Clause/Due on Sale Clause
Provision in a mortgage document stating that the loan must be paid in full if ownership is transferred.

Amortization
A payment plan which enables the borrower to reduce his debt gradually through monthly payments of principal.

Amortization
The loan payment consists of a portion which will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time.

Amortization Schedule
A table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.

Amount Financed
This figure is used to calculate your APR. It represents your loan amount minus any prepaid finance charges (i.e., the sum of "Amount Financed" and "Finance Charge") assuming you kept the loan to maturity and made only the required monthly payments.

Annual Percentage Rate (APR)
There are two interest rates applicable to your loan: (i) your Actual Interest Rate and (ii) your Annual Percentage Rate. Your Actual Rate is the annual interest rate of your loan (sometimes referred to as the "note rate"), and is the rate used to calculate your monthly payments. The amount of interest you pay, as determined by your Actual Rate, is only one of the costs associated with your loan... there may be others. The Annual Percentage Rate (referred to as the "APR") encompasses both your interest and any additional costs or prepaid finance charges you may pay such as prepaid interest (necessary to adjust your first payment if you close mid-month), private mortgage insurance, closing fees, points, etc. Your APR represents the total cost of credit on a yearly basis after all charges are taken into consideration. It will usually be slightly higher than your Actual Rate because it includes these additional items and assumes you will keep the loan to maturity.

Application
The form used to apply for a mortgage loan, containing information about a borrower's income, savings, assets, debts, and more.

Application Fee
Some lenders charge an "Application Fee" fee for accepting and reviewing your loan application.

Appraisal
An appraisal is a written analysis of the estimated value of your property. A qualified appraiser who has knowledge, experience and insight into the marketplace prepares the document. It ensures you're paying fair market value for your home and is required to close on your new home or property.

Appraisal
Expert's estimate of the quality or value of real estate as of a given date.

Appraisal Fee
This fee is paid to the outside appraisal company engaged to objectively determine the fair market value of your property. This fee varies based on the location and type of your property.

Appraised Value
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property. Since an appraisal is based primarily on comparable sales, and the most recent sale is the one on the property in question, the appraisal usually comes out at the purchase price.

Appraiser
An individual qualified by education, training, and experience to estimate the value of real and personal property. Although some appraisers work directly for mortgage lenders, most are independent.

Appreciation
The increase in the value of a property due to changes in market conditions, inflation, or other causes.

Assessed Value
Figure in dollars determined for tax purposes by an assessor which reflects a property's worth and which, unless exempt, is used to compute a tax dollar obligation by multiplying it by a tax rate. This is often confused with the term appraisal.

Assessment
The placing of a value on property for the purpose of taxation.

Assessor
A public official who establishes the value of a property for taxation purposes.

Asset
Items of value owned by an individual. Assets that can be quickly converted into cash are considered "liquid assets." These include bank accounts, stocks, bonds, mutual funds, and so on. Other assets include real estate, personal property, and debts owed to an individual by others.

Assignment
When ownership of your mortgage is transferred from one company or individual to another, it is called an assignment.

Assignment Recording Fee
In many instances, after closing your loan is transferred to a specialized loan "servicer" who handles the collection of your monthly payments. The Assignment Fee covers the cost of recording this transfer at the local recording office.

Assumability
When a home is sold, the seller may be able to transfer the mortgage to the new buyer. Lenders generally require a credit review of the new borrower and may charge a fee for the assumption. Some mortgages contain a due-on-sale clause, which means that the mortgage may not be transferable to a new buyer. Instead, the lender may make you pay the entire balance that is due when you sell the home. Assumability can help you attract buyers if you sell your home. It is common for FHA an VA Loans.

Assumable Mortgage
A mortgage that can be assumed by the buyer when a home is sold. Usually, the borrower must "qualify" in order to assume the loan.

Assumption
The term applied when a buyer assumes the seller's mortgage.

Attached Home
A home that has one or more common walls adjoining another home. Condominiums, townhomes and row houses are attached homes.

Balloon Mortgage
A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance must be paid.

Balloon Payment
The final lump sum payment that is due at the termination of a balloon mortgage.

Bankruptcy
By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities. Bankruptcies are of various types, but the most common for an individual seems to be a "Chapter 7 No Asset" bankruptcy which relieves the borrower of most types of debts. A borrower cannot usually qualify for an "A" paper loan for a period of two years after the bankruptcy has been discharged and requires the re-establishment of an ability to repay debt.

Bill of Sale
A written document that transfers title to personal property. For example, when selling an automobile to acquire funds which will be used as a source of down payment or for closing costs, the lender will usually require the bill of sale (in addition to other items) to help document this source of funds.

Biweekly Mortgage
A mortgage which requires a payment for half the monthly amount every two weeks. As a result the loan amortizes much faster than a loan with normal monthly payments. The result is as if one extra monthly payment were made each year. With this, 30 year fixed rate loan will be paid off in approximately 22.7 years. You may achieve the same affect by making extra monthly principal payments.

Blanket Mortgage
A mortgage covering at least two pieces of real estate as collateral.

Bond Market
Usually refers to the daily buying and selling of thirty year treasury bonds. Lenders follow this market intensely because as the yields of bonds go up and down, fixed rate mortgages do approximately the same thing. The same factors that affect the Treasury Bond market also affect mortgage rates at the same time. That is why rates change daily, and, in a volatile market, can and do change during the day as well.

Bridge Loan
Interim loan to finance a buyers new residence if the buyer is unable to sell his/her current residence first.

Broker
Real estate broker

Broker
Broker has several meanings in different situations. Most Realtors are "agents" who work under a "broker." Some agents are brokers as well, either working for themselves or under another broker. In the mortgage industry, broker usually refers to a company or individual that does not lend the money for the loans themselves, but broker loans to larger lenders or investors. (See the Home Loan Library that discusses the different types of lenders). As a normal definition, a broker is anyone who acts as an agent, bringing two parties together for any type of transaction and earns a fee for doing so.

Building Line or Setback
Buffer distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be established by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances.

Buydown
The seller pays an amount to the lender so that the lender can give you a lower rate and lower payments, usually for an early period in an ARM. The seller may increase the sales price to cover the cost of the buydown. Buydowns can occur in all types of mortgages, not just ARMs.

Call Option
Similar to the acceleration clause.

Capital Gains
Profit earned from the sale of real estate. The new tax code may not tax the the first $500,000 of profits from the sale of a home (married filing jointly, $250,000 single) if you have occupied the home for at least 2 years. Consult your tax advisor.

Caps
Limit on how much the interest rate or the monthly payment can change, either at each adjustment or during the life of the mortgage. All ARMs have interest rate caps to protect you from enormous increases in monthly payments. A lifetime cap limits the interest rate increase over the life of the loan. Lifetime caps can vary by lender, but most ARMs have caps of 5% or 6%. A periodic or adjustment cap limits how much your interest rate can rise at one time. Generally, a 6 month ARM will have a cap of 1% while a 1 year ARM will have a 2% cap. Periodic and lifetime caps are quoted as two numbers as in 2/6 which would mean that periodic cap is 2% and the lifetime cap is 6%. Examples: 1. The initial interest rate is 5.5%, the index is 8%, and the margin is 2.875%, then the new interest rate = 8% + 2.875% = 10.875%. If the lifetime cap is 5% then the actual new interest rate will be 5.5% + 5% = 9.5%. 2. The initial interest rate is 6%, the index is 7%, and the margin is 3%, then the new interest rate = 7% + 3% = 10%. But, If the periodic cap is 1% then the actual new interest rate will be 6% + 1% = 7%. ARMs which have an initial fixed period -- 30/3/1, 30/5/1, 30/7/1 and 30/10/1 -- can have also first adjustment cap. It limits the interest rate you will pay the first time your rate is adjusted. These ARMs are quoted as three numbers as in 5/2/5 which would mean that the first adjustment cap is 5%, adjustment cap thereafter is 2%, and the lifetime cap is 5%. Two-Step loans -- 5/25 and 7/23 -- have only one adjustment after the first five or seven years of its term. They are quoted with a single first adjustment cap.

Caps

Carry Back
In order to sell his home, a seller may be willing to "carry back" a second trust deed/mortgage. This would mean that the buyer of the home would obtain a first trust deed from a traditional lender for perhaps 75% or 80% of the purchase price, and obtain a second mortgage directly rom the seller of the home for an additional five or ten percent of the purchase price. The "loan-to-value of these mortgages can vary, as well as the terms. It is common for the second trust deed to require "interest only payments (which do not pay towards any of the principal) and for the loan to be totally "due and payable" after a term of five years. Then the buyer may have to refinance in order to pay off the loan, obtain a new second trust deed elsewhere, or pay off the loan from savings. The major reason for obtaining a "seller carry back" is that the lower loan-to-value ratio on the first mortgage will make it easier to qualify for the loan, and there will be no need for mortgage insurance.

Cash out refinance
A refinance on a home that you own where the loan amount has extra money left after paying off the existing purchase money mortgages and closing costs. Usually 1-2% of the loan amount can be given to you at closing loan before is it considered a cash out refinance.

Certificate of Deposit
A time deposit held in a bank which pays a certain amount of interest to the depositor.

Certificate of Deposit Index
One of the indexes used for determining interest rate changes on some adjustable rate mortgages. It is an average of what banks are paying on certificates of deposit.

Certificate of Eligibility
A document issued by the U.S. Department of Veterans Affairs. It is required when applying for VA loans.

Certificate of Occupancy
Document which is issued by local governments that states a property meets the local building standards for occupancy. Required for new construction and sometimes also for the sale of an existing property.

Certificate of Reasonable Value
An appraisal by a VA approved appraiser which estimates the property's current market value.

Chain of Title
An analysis of the transfers of title to a piece of property over the years.

Clear Title
A title that is free of liens or legal questions as to ownership of the property.

Clear Title
A title/deed that free of clouds and disputed interests.

Closing
This has different meanings in different states. In some states a real estate transaction is not consider "closed" until the documents record at the local recorders office. In others, the "closing" is a meeting where all of the documents are signed and money changes hands.

Closing Costs
The numerous expenses which buyers and sellers normally incur to complete a transaction in the transfer of ownership of real estate. These costs are in addition to price of the property and are items prepaid at the closing day. This is a typical list: BUYER'S EXPENSES Recording Deed and Mortgage Escrow Fees Attorney's Fee (optional) Title Insurance Appraisal Endorsements to Title 1% PA Transfer Tax Pre-Paid Property tax, sewer, water, trash, adjustments Points and other loan fees Homeowners/Hazard Insurance Policy for 1st year SELLER'S EXPENSES Attorney's Fee (optional) Real Estate Commission 1% PA Transfer Tax Satisfaction of liens Express mail for lien payoff(s) The agreement of sale negotiated previously between the buyer and the seller may state in writing who will pay each of the above costs.

Closing Day
The day on which the formalities of a real estate sale are concluded. The deed is generally prepared for the closing by an attorney and this cost charged to the buyer. The buyer signs the mortgage, and closing costs are paid. The final closing merely confirms the original agreement reached in the agreement of sale.

Closing Statement
See Settlement Statement.

Cloud (On Title)
An outstanding claim or encumbrance which adversely affects the marketability of title.

Co-Borrower
An additional individual who is both obligated on the loan and is on the title to the property.

Collateral
In a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust.

Collection
When a borrower falls behind, the lender contacts them in an effort to bring the loan current. The loan goes to "collection." As part of the collection effort, the lender must mail and record certain documents in case they are eventually required to foreclose on the property.

Commission
Most salespeople earn commissions for the work that they do and there are many sales professionals involved in each transaction, including realtors, loan officers, title representatives, attorneys, escrow representative, and representatives for pest companies, home warranty companies, home inspection companies, insurance agents, and more. The commissions are paid out of the charges paid by the seller or buyer in the purchase transaction. Realtors generally earn the largest commissions, followed by lenders, then the others.

Commission
Fee paid to a real estate agent or broker by the seller as compensation for finding a buyer and completing the sale. Usually it is a percentage of the sale price--6 to 7 percent on houses, 10 percent on land.

Commitment
A written agreement between a lender and a borrower to loan money on specific terms or conditions.

Common Area Assessments
In some areas they are called Homeowners Association Fees. They are charges paid to the Homeowners Association by the owners of the individual units in a condominium or planned unit development (PUD) and are generally used to maintain the property and common areas.

Common Areas
Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project's homeowners' association (or a cooperative project's cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.

Common Law
An unwritten body of law based on general custom in England and used to an extent in some states.

Community Property
In some states, especially the southwest, property acquired by a married couple during their marriage is considered to be owned jointly, except under special circumstances. This is an outgrowth of the Spanish and Mexican heritage of the area.

Comparable Sales
Recent sales of similar properties in nearby areas and used to help determine the market value of a property. Also referred to as "comps."

Condominium
A real estate project in which each unit owner holds title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas. The condominium may be attached or detached. The homeowners association dues are included in the total monthly mortgage payment for qualifying purposes.

Condominium Conversion
Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

Condominium Hotel
A condominium project that has rental or registration desks, short-term occupancy, food and telephone services, and daily cleaning services and that is operated as a commercial hotel even though the units are individually owned. These are often found in resort areas like Hawaii.

Construction loan
A short term loan to pay for the construction of buildings or homes. These loans usually provide periodic disbursements to the builder as each stage of the building is completed. Generally followed by long term financing called a "take out" loan issued upon completion of construction.

Contingency
A condition put on an offer to buy a home; such as the perspective buyer making an offer contingent on his or her sale of a present home, or being approved for a mortgage.

Contract
An oral or written agreement to do or not to do a certain thing.

Conventional Mortgage
Any mortgage loan not insured by HUD or guaranteed by the Veterans' Administration. It is subject to conditions established by the lending institution, Fannie Mae, Freddie Mac, and State statutes.

Conversion Option
Some ARMs come with options to convert them to a fixed rate mortgage during a given time period without having to go through a refinancing, which could cost up to 5 percent or 6 percent of the loan amount. For example popular conversion options for 1 year treasury-indexed ARMs include: 1. option to convert on the third, fourth, or fifth adjustment date, i.e. during the 37th, 49th and 61st months of the loan. 2. option to convert during the first five years on the adjustment date, i.e. during the 13th, 25th, 37th, 49th and 61st months of the loan. The interest rate or points may be somewhat higher for a convertible ARM. Also, a convertible ARM may require a small fee at the time of conversion.

Convertible ARM
An adjustable-rate mortgage that allows the borrower to change the ARM to a fixed-rate mortgage within a specific time.

Conveyance
The transfer of title to the property from one party to another.

Cooperative Housing
An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors. In a cooperative, the corporation or association owns title to the real estate. A resident purchases stock in the corporation which entitles him to occupy a unit in the building or property owned by the cooperative. While the resident does not own his unit, he has an absolute right to occupy his unit for as long as he owns the stock.

Cost of Funds Index (COFI)
One of the indexes that is used to determine interest rate changes for certain adjustable-rate mortgages. It represents the weighted-average cost of savings, borrowings, and advances of the financial institutions such as banks and savings & loans, in the 11th District of the Federal Home Loan Bank.

Credit
An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.

Credit History
A record of an individual's repayment of debt. Credit histories are reviewed by mortgage lenders as one of the underwriting criteria in determining credit risk.

Credit Report
A report documenting the history of how you paid back the companies you have borrowed money from, or how you have met other financial obligations.

Credit Repository
An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.

Creditor
A person to whom money is owed.

Debt
An amount owed to another.

Deed
A formal written instrument by which title to real property is transferred from one owner to another. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the State where the property is located, and should be delivered to the purchaser at closing day. There are two parties to a deed: the grantor and the grantee. (See also Deed of Trust, General Warranty Deed, Quitclaim Deed, and Special Warranty Deed).

Deed
The legal document conveying title to a property.

Deed of Trust
Like a mortgage, a security instrument whereby real property is given as security for a debt. However, in a deed of trust there are three parties to the instrument: the borrower, the trustee, and the lender, (or beneficiary). In such a transaction, the borrower transfers the legal title for the property to the trustee who holds the property in trust as security for the payment of the debt to the lender or beneficiary. If the borrower pays the debt as agreed, the deed of trust becomes void. If, however, he defaults in the payment of the debt, the trustee may sell the property at a public sale, under the terms of the deed of trust. In most jurisdictions where the deed of trust is in force, the borrower is subject to having his property sold without benefit of legal proceedings. A few States have begun in recent years to treat the deed of trust like a mortgage.

Deed-In-Lieu
Short for "deed in lieu of foreclosure," this conveys title to the lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities if a borrower asks to provide a deed-in-lieu. Regardless of whether the lender accepts the deed-in-lieu, the avoidance and non-repayment of debt will most likely show on a credit history. What a deed-in-lieu may prevent is having the documents preparatory to a foreclosure being recorded and become a matter of public record.

Default
Failure to make mortgage payments as agreed to in a commitment based on the terms and at the designated time set forth in the mortgage or deed of trust. It is the mortgagor's responsibility to remember the due date and send the payment prior to the due date, not after. Generally, thirty days after the due date if payment is not received, the mortgage is in default. In the event of default, the mortgage may give the lender the right to accelerate payments, take possession and receive rents, and start foreclosure. Defaults may also come about by the failure to observe other conditions in the mortgage or deed of trust.

Deferred interest
When the monthly payments do not cover all of the interest cost, the unpaid interest is deferred by adding it to the loan balance.

Deficiency Judgment
Personal claim against the debtor when the sale of foreclosed property does not yield sufficient proceeds to pay off the mortgages.

Delinquency
Failure to make mortgage payments when mortgage payments are due. For most mortgages, payments are due on the first day of the month. Even though they may not charge a "late fee" for a number of days, the payment is still considered to be late and the loan delinquent. When a loan payment is more than 30 days late, most lenders report the late payment to one or more credit bureaus.

Deposit
A sum of money given in advance of a larger amount being expected in the future. Often called in real estate as an "earnest money deposit."

Depreciation
Decline in value of a house due to wear and tear, adverse changes in the neighborhood, or any other reason.

Discount
In an ARM with an initial rate discount, the lender gives up a number of percentage points in interest to give you a lower rate and lower payments for part of the mortgage term (usually for one year or less). After the discount period, the ARM rate will probably go up depending on the index rate. A State tax, in the forms of stamps, required on deeds and mortgages when real estate title passes from one owner to another. The amount of stamps required varies with each State.

Discount Points
In the mortgage industry, this term is usually used only in reference to government loans, meaning FHA and VA loans. Discount points refer to any "points" paid in addition to the one percent loan origination fee. A "point" is one percent of the loan amount.

Document Preparation Fee
The use of outside companies to prepare the loan closing documents. This fee covers the cost of this service.

Downpayment
The amount of money to be paid by the purchaser to the seller upon the signing of the agreement of sale. The agreement of sale will refer to the downpayment amount and will acknowledge receipt of the downpayment. Downpayment is the difference between the sales price and maximum mortgage amount. The downpayment may not be refundable if the purchaser fails to buy the property without good cause. If the purchaser wants the downpayment to be refundable, he should insert a clause in the agreement of sale specifying the conditions under which the deposit will be refunded, if the agreement does not already contain such clause. If the seller cannot deliver good title, the agreement of sale usually requires the seller to return the downpayment and to pay interest and expenses incurred by the purchaser.

Due-on-Sale Clause
A clause in the Deed of Trust or Mortgage that states that the entire loan is due upon the sale of the property.

Duplex
Owner occupied property for more than one family.

Earnest Money
The deposit money given to the seller or his agent by the potential buyer upon the signing of the agreement of sale to show that he is serious about buying the house. If the sale goes through, the earnest money is applied against the downpayment. If the sale does not go through, the earnest money will be forfeited or lost unless the binder or offer to purchase expressly provides that it is refundable.

Earnest Money Deposit
A deposit made by the potential home buyer to show that he or she is serious about buying the house.

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

Easement Rights
A right-of-way granted to a person or company authorizing access to or over the owner's land. An electric company obtaining a right-of-way across private property is a common example.

Effective Age
An appraiser's estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.

Eminent Domain
The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.

Encroachment
An obstruction, building, or part of a building that intrudes beyond a legal boundary onto neighboring private or public land, or a building extending beyond the building line.

Encumbrance
A legal right or interest in land that affects a good or clear title, and diminishes the land's value. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive covenants. An encumbrance does not legally prevent transfer of the property to another. A title search is all that is usually done to reveal the existence of such encumbrances, and it is up to the buyer to determine whether he wants to purchase with the encumbrance, or what can be done to remove it.

Equal Credit Opportunity Act
Prohibits discrimination in any aspect of a credit transaction on the basis of race, religion, age, color, national origin, receipt of public assistance funds, sex, or marital status.

Equity
The value of a homeowner's unencumbered interest in real estate. Equity is computed by subtracting from the property's fair market value the total of the unpaid mortgage balance and any outstanding liens or other debts against the property. A homeowner's equity increases as he pays off his mortgage or as the property appreciates in value. When the mortgage and all other debts against the property are paid in full the homeowner has 100% equity in his property.

Escrow
Funds paid by one party to another (the escrow agent) to hold until the occurrence of a specified event, after which the funds are released to a designated individual. In FHA mortgage transactions an escrow account usually refers to the funds a mortgagor pays the lender at the time of the periodic mortgage payments. The money is held in a trust fund, provided by the lender for the buyer. Such funds should be adequate to cover yearly anticipated expenditures for mortgage insurance premiums, taxes, hazard insurance premiums, and special assessments. See also Escrow Account.

Escrow Account
Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner's insurance when they come due. The lender pays them with your money instead of you paying them yourself.

Escrow Analysis
Once each year your lender will perform an "escrow analysis" to make sure they are collecting the correct amount of money for the anticipated expenditures.

Escrow Disbursements
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

Escrows
Lenders often set up an account, called an escrow or impound account, to hold the tax and insurance portions of your monthly mortgage payment. At closing, the lender collects sufficient money to establish the necessary reserves in this account. The reserves plus the monthly deposits are then held until such time they are used by the lender to pay the tax and insurance bills.

Estate
The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.

Estimated Closing Fees
An estimate of the fees that must be paid on or before the closing date by the buyer and/or seller for services, taxes and items necessary to obtain mortgage. These fees will average between 2% and 5% of the loan amount and vary by lender, property location, and type of mortgage.

Eviction
The lawful expulsion of an occupant from real property.

Examination of Title
The report on the title of a property from the public records or an abstract of the title.

Exclusive Listing
A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time.

Executor
A person named in a will to administer an estate. The court will appoint an administrator if no executor is named. "Executrix" is the feminine form.

Express/Courier Fee
On refinance transactions, an overnight courier is typically used to expedite the payoff of your existing loan. This fee covers the cost of the courier.

Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record.

Fair Housing Act
Prohibits discrimination in housing sales or loans on the basis of race, religion, color, national origin, sex, familial status, or handicap. Your Rights under the Fair Housing Act.

Fair Market Value
The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

Fannie Mae's Community Home Buyer's Program
An income-based community lending model, under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low- or moderate-income family's buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase home-buyer education sessions.

Federal Home Loan Mortgage Corporation (FHLMC, Freddie Mac)
A stockholder-owned corporation chartered by Congress to create a continuous flow of funds to mortgage lenders in support of homeownership and rental housing. Freddie Mac purchases single-family and multifamily residential mortgages from lenders and packages them into securities that are sold to investors.

Federal Housing Administration (FHA)
A part of the U.S. Department of Housing and Urban Development (HUD). FHA assists 1st-time home buyers and low to moderate income borrowers who may not be able to meet down payment requirements for conventional loans by providing mortgage insurance to private lenders. It also insures loans for home improvements and buying manufactured/mobile homes. These programs operate through FHA approved lending institutions and their correspondents, such as Allegiance mortgage.

Federal National Mortgage Association (FNMA, Fannie Mae)
A stockholder-owned federally chartered corporation. Fannie Mae purchases residential home loans from mortgage lending institutions, packages the mortgages into securities and sells the securities to investors. They are the largest source of residential mortgage funds in the USA.

Fee Simple
The greatest possible interest a person can have in real estate.

Fee Simple Estate
An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.

FHA Loan
A loan insured by the Federal Housing Administration open to all qualified home purchasers. Interest rates on FHA loans are generally market rates, while down payment requirements are lower than for conventional loans. FHA loans cannot exceed the statutory limit.

FHA Mortgage
A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.

Filing Fees
The amount charged by public officials in your area for recording your mortgage and other documents.

Finance Charge
Your finance charge is the total of all the interest you would pay over the entire life of the loan, assuming you kept the loan to maturity, as well as all prepaid finance charges. If you pre-pay any principal during your loan, your monthly payments remain the same, but your total finance charge will be reduced.

Firm Commitment
A lender's agreement to make a loan to a specific borrower on a specific property.

First Mortgage
A mortgage that has priority as a lien over all other mortgages.

Fixed Rate Mortgages
Fixed Rate Mortgages are mortgages on which the same rate of interest is charged for the life of the loan.

Fixed-Rate Mortgage
A mortgage in which the interest rate does not change during the entire term of the loan.

Fixture
Personal property that becomes real property when attached in a permanent manner to real estate.

Float
Until you request to secure a lender's quoted interest rate, the interest rate will continue to change, or float, due to market fluctuations. Locking or securing a rate protects you from these potential fluctuations from the time your lock is confirmed to the day your lock period expires. You may choose to float your rate up until the time your lender contacts you to schedule your closing. At this time, an interest rate must be secured in order to prepare your closing documents.

Flood Certification Fee
Federal law requires that you obtain flood hazard insurance if your property lies in a flood zone. As part of our evaluation of your property, we engage a flood determination company to tell us whether or not your house lies in a flood zone. The flood certification fee covers the cost. If your house is located in a flood zone, you will be required to purchase Flood Insurance.

Flood Insurance
Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

Flood Insurance
Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

Flood Life of Loan Coverage
Flood zone determinations may change from time to time. The "Life of Loan Coverage" fee allows us to track any changes in your property's flood zone status over the life of your loan.

Foreclosure
A legal term applied to any of the various methods of enforcing payment of the debt secured by a mortgage, by taking and selling the mortgaged property, and depriving the mortgagor of possession.

Foreclosure
The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

FSBO
For sale by owner.

General Warranty Deed
A deed which conveys not only all the grantor's interests in and title to the property to the grantee, but also warrants that if the title is defective or has a "cloud" on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic's liens against it) the grantee may hold the grantor liable. Buyers have used this as an alternate to purchasing title insurance.

Government Loan (Mortgage)
A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Mortgages that are not government loans are classified as conventional loans.

Government National Mortgage Association (Ginnie Mae)
A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA performs the same role as Fannie Mae and Freddie Mac in providing funds to lenders for making home loans. The difference is that Ginnie Mae provides funds for government loans (FHA and VA).

Government National Mortgage Association (GNMA, Ginnie Mae)
A government owned corporation within the HUD that helps to finance government-assisted housing programs. Ginnie Mae guarantees securities backed by pools of mortgages. The mortgages are insured by FHA, or guaranteed by VA, or by the Rural Housing Service (RHS). Ginnie Mae securities are bought and sold through financial institutions that trade government securities.

Government Recording Fee
We pay this fee to your local county recording office for recording our mortgage lien, and in the event of a purchase transaction, the deed which transfers title. Fees for recording vary by county and are set by state and local governments.

Graduated Payment Mortgage
A type of a mortgage that has lower payments for up to 5 years initially and then payments increase each year until the loan is fully amortized. Can result in negative amortization.

Grantee
That party in the deed who is the buyer or recipient.

Grantor
That party in the deed who is the seller or giver.

Guideline Ratios
There are two guideline ratios used to qualify you for a mortgage. The first is called the front-end ratio, or top ratio, and is calculated by dividing your new total monthly mortgage payment by your gross monthly income. Typically, this ratio should not exceed 28%. The second is called the back-end, or bottom ratio, and is equal to your new total monthly mortgage payment plus your total monthly debt divided by your gross monthly income. Typically, this ratio should not exceed 36%.

Hazard Insurance
Insurance coverage in the event of physical damage to a property from fire, wind, vandalism, or other hazards.

Home Equity Conversion Mortgage (HECM)
Usually referred to as a reverse annuity mortgage, what makes this type of mortgage unique is that instead of making payments to a lender, the lender makes payments to you. It enables older home owners to convert the equity they have in their homes into cash, usually in the form of monthly payments. Unlike traditional home equity loans, a borrower does not qualify on the basis of income but on the value of his or her home. In addition, the loan does not have to be repaid until the borrower no longer occupies the property.

Home Equity Line of Credit
A home equity line of credit is a credit line that is kept open and restored as you pay off what is owed. An equity line of credit also has a high credit limit similar to a credit card that you are allowed to draw upon as needed.

Home Equity Line of Credit
A mortgage loan, usually in second position, that allows the borrower to obtain cash drawn against the equity of his home, up to a predetermined amount.

Home Inspection
A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.

Homeowners' Association
A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements.

Homeowners Insurance
Just like you insure your automobile to protect against theft and damage, you insure your home. Homeowners insurance is required by all lenders to protect their investment, and must be obtained before closing. In most cases, coverage must be equal to the loan balance, or the value of the home.

Homeowner's Warranty
A type of insurance often purchased by homebuyers that will cover repairs to certain items, such as heating or air conditioning, should they break down within the coverage period. The buyer often requests the seller to pay for this coverage as a condition of the sale, but either party can pay.

HUD
U.S. Department of Housing and Urban Development. Office of Housing/Federal Housing Administration within HUD insures home mortgage loans made by lenders and sets minimum standards for such homes.

HUD Median Income
Median family income for a particular county or metropolitan statistical area (MSA), as estimated by the Department of Housing and Urban Development (HUD).

HUD-1 Settlement Statement
A standard form that shows all charges imposed on borrowers and sellers in connection with the settlement. RESPA allows the borrower to request to see the HUD-1 Settlement Statement one day before the actual settlement.

Impound/Escrows
That portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.

Index
A published measure of economic conditions usually relative to other financial instruments such as Treasury notes or Treasury bills. The lender uses a particular index to calculate the interest rate on an adjustable rate mortgage (ARM) by adding a fixed margin to the index. The most common indexes are: Constant Maturity Treasury (CMT) Treasury Bill (T-Bill) 12-Month Treasury Average (MTA) 11th District Cost of Funds Index (COFI) London Inter Bank Offering Rates (LIBOR) Certificates of Deposit (CD) Indexes Prime Rate

Interest
A charge paid for borrowing money. See Mortgage Note

Interest Rate Disclosure
A description of the conditions applicable to the processing of your loan as well as the terms of your interest rate agreement with the lender.

Joint Tenancy
Joint tenancy is one of the methods available for two or more people to hold title to real estate or personal property. It includes a right of survivorship, meaning that on the death of one joint tenant, his/her interests transfer to the remaining joint tenants.

Jumbo Loan
A loan that exceeds the conforming loan limits established by Fannie Mae or Freddie Mac. It has interest rates a little higher than conforming loan.

Lender Fees
Lender Fees are fees paid to the lender.

Lender Paid Mortgage insurance (LPMI)
An alternative to PMI. The lender will increase the interest rate instead of charging PMI on loans with LTV's greater than 80%. Read about different PMI options.

Lender Processing Fee
The lender processing fee covers the cost of analyzing your loan application and compiling and packaging the necessary supporting documentation to close your loan.

Lien
A claim by one person on the property of another as security for money owed. Such claims may include obligations not met or satisfied, judgments, unpaid taxes, materials, or labor. See also Special Lien.