Buyers

If you are a first-time home buyer, use the guide below for helpful hints and tips and learn how to avoid common mistakes when buying your first home.

• Pre-Qualification: Meet with a mortgage broker and find out how much you can afford to pay for a home.
• Pre-Approval: While knowing how much you can afford is the first step, sellers will be much more receptive to potential buyers who have been pre-approved. You'll also avoid being disappointed when going after homes that are out of your price range. With Pre-Approval, the buyer actually applies for a mortgage and receives a commitment in writing from a lender. This way, assuming the home you're interested in is at or under the amount you are pre-qualified for, the seller knows immediately that you are a serious buyer for that property. Costs for pre-approval are generally nominal and lenders will usually permit you to pay them when you close your loan.
• List of Needs & Wants: Make 2 lists. The first should include items you must have (i.e., the number of bedrooms you need for the size of your family, a one-story house if accessibility is a factor, etc.). The second list is your wishes - things you would like to have (pool, den, etc.) but that are not absolutely necessary. Realistically for first-time buyers, you probably will not get everything on your wish list, but it will keep you on track for what you are looking for.
• Representation by a Professional: Consider hiring your own real estate agent, one who is working for you, the buyer, not the seller.
• Focus & Organization: In a convenient location, keep handy the items that will assist you in maximizing your home search efforts. Such items may include:

1. One or more detailed maps with your areas of interest highlighted.
2. A list or file of the properties that your agent has shown to you.
3. Paper and pen for taking notes as you search.
4. A camera to snap pictures of homes you have toured to help you remember your favorites and features you really liked.

• Visualize the house empty & with your decor: Are the rooms laid out to fit your needs? Is there enough light?
• Be Objective: Instead of thinking with your heart when you find a home, think with your head. Does this home really meet your needs? There are many houses on the market, so don't make a hurried decision that you may regret later.
• Be Thorough: A few extra dollars well spent now may save you big expenses in the long run. Don't forget such essentials as:

1. Include inspection & mortgage contingencies in your written offer.
2. Have the property inspected by a professional inspector.
3. Request a second walk-through to take place within 24 hours of closing.
4. You want to check to see that no changes have been made that were not agreed on (i.e., a nice chandelier that you assumed came with the sale has been replaced by a cheap ceiling light).

All the above may seem rather overwhelming. That is why having a professional represent you and keep track of all the details for you is highly recommended. Please contact us directly to discuss any of these matters in further detail.

Before the offer to purchase is created, it is very important that you have been at least pre-qualified or better yet pre-approved by a lender.

This is one of the best negotiating tools a buyer can have. It shows the seller that you are financially able to purchase the home. After you have found the right home, it is time to prepare the offer.

When you are buying a home, there are many problems that the seller is obligated to disclose. For example, in most states, it is illegal to withhold information about major physical defects on the property, but these disclosures don't always paint the entire picture of the home. Here are six questions you may want to ask that can offer additional insight about the prospective home before you make a final decision.

1) Why is the seller selling the house? This question may help you evaluate the "real value" of the property. Is there something about the house the seller does not like? If so, you may be able to adjust the purchase offer accordingly.

2) How much did the seller pay for the home? This question can, in some instances, help the buyer negotiate a better deal and maybe even get the seller to carry part of the loan. However, it is important to remember that the purchase price is influenced by several factors, like the current market value and any improvements the seller may have made to the home. The original purchase price might not have anything to do with the current value of the house.

3) What does the seller like most and least about the property? By asking the seller what he or she likes most and least about the property, you might get some interesting information. In a few cases, what a seller likes the most about a home might actually be something the buyer is looking to avoid. For example, if the seller describes his house as being in a "happening community," the buyer might consider this a negative factor because the area may be too noisy or busy for his or her taste.

4) Has the seller had any problems with the home in the past? It is also a good idea to ask the seller if he or she has had any problems with the home while living there. Has the seller had problems with a leakage from the upstairs bedroom in the past? If so, even if the leak has been corrected, the floor and walls around the bathroom might have been damaged. You should also check that these items were repaired properly.

5) Are there any nuisances or problem neighbors? Use this answer to find out about any noisy neighbors, barking dogs, heavy airplane traffic or even planned changes to the community, such as a planned street widening. This may give you insight into why the seller is really moving.

6) How are the public schools in the area? Because the value of a community is usually greatly influenced by the public schools in the area, finding out the buyer's perception can give you some insight into the quality of the area's schools.

Knowing all you can about a prospective home, not only helps you decide if it's the home of your dreams but what offer to make as well. Your real estate professional can help you get your key questions answered and give you advice on how to evaluate your findings.

You've found your dream home, the seller has accepted your offer, your loan has been approved and you're eager to move into your new home. But before you get the key, there's one more step--the closing.

Also called the settlement, the closing is the process of passing ownership of property from seller to buyer. And it can be bewildering. As a buyer, you will sign what seems like endless piles of documents and will have to present a sizeable check for the down payment and various closing costs. It's the fees associated with the closing that many times remain a mystery to many buyers who may simply hand over thousands of dollars without really knowing what they are paying for.

As a responsible buyer, you should be familiar with these costs that are both mortgage-related and government-imposed. Although many of the fees may vary by locality, here are some common fees:

Appraisal Fee: This fee pays for the appraisal of the property. You may already have paid this fee at the beginning of your loan application process.

Credit Report Fee: This fee covers the cost of the credit report requested by the lender. This too may already have been paid when you applied for your loan.

Loan Origination Fee: This fee covers the lender's loan-processing costs. The fee is typically one percent of the total mortgage.

Loan Discount: You will pay this one-time charge if you have chosen to pay points to lower your interest rate. Each point you purchase equals one percent of the total loan.

Title Insurance Fees: These fees generally include costs for the title search, title examination, title insurance, document preparation, and other miscellaneous title fees.

PMI Premium: If you buy a home with a low down payment, a lender usually requires that you pay a fee for mortgage insurance. This fee protects the lender against loss due to foreclosure. Once a new owner has 20 percent equity in their home, however, he or she can normally apply to eliminate this insurance.

Prepaid Interest Fee: This fee covers the interest payment from the date you purchase the home to the date of your first mortgage payment. Generally, if you buy a home early in the month, the prepaid interest fee will be substantially higher than if you buy it towards the end of the month.

Escrow Accounts: In locations where escrow accounts are common, a mortgage lender will usually start an account that holds funds for future annual property taxes and home insurance. At least one year advance plus two months' worth of homeowner's insurance premium will be collected. In addition, taxes equal approximately two months in excess of the number of months that have elapsed in the year are paid at closing. (If six months have passed, eight months of taxes will be collected.)

Recording Fees and transfer taxes: This expense is charged by most states for recording the purchase documents and transferring ownership of the property.

Make sure you consult a real estate professional in your area to find out which fees--and how much--you will be expected to pay during the closing of your prospective home. Keep in mind that you can negotiate these costs with the seller during the offering stage. In some instances, the seller might even agree to pay all of the settlement costs.

Congratulations, you are on your way to owning your very own home! Follow these suggestions (and your Real Estate Agent advice) so that escrow and settlement go as smoothly as possible.

You will be asked for a down payment on the home you are purchasing. You can choose to put down as much or as little as you want (depending on your mortgage), but remember, the more you put down toward the total price of your home, the less time it will take you to pay off and the less your mortgage payments will be every month.

During this period of purchasing your home, you are going to need an escrow or settlement company to act as an independent third party so that you know when and who to give your money to get the deed to your new home. The escrow or settlement company will hold your deposit and coordinate much of the activity that goes on during the escrow period. This deposit check may also be held by an attorney or in the broker's trust account. Make sure that there are sufficient funds in your account to cover this check.

The deposit check will be cashed. Assuming the sale goes through, this money will be applied to the purchase price of the home. If for any reason the sale is not consummated, you may be entitled to receive all of your deposit back, less standard cancellation fees. In certain instances, the seller may be able to retain this money as liquidated damages. Prior to executing a purchase contract, it would be wise to speak with your counsel regarding whether or not it is your best interest to have a liquidated damages clause as part of the contract.

You've made it! Once the sale has closed, you're the proud owner of a new home. Congratulations!

Adjustable-Rate Mortgage (ARM)
A mortgage whose interest rate changes periodically based on the changes in a specified index.

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

Amortization
The repayment of a mortgage loan in installments with regular payments to cover the principal and interest.

Amortization Term
The amount of time required to amortize the mortgage loan. The amortization term is expressed as a number of months. For example, for a 30-year fixed-rate mortgage, the amortization term is 360 months.

Annual Percentage Rate (APR)
The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance, and loan origination fee (points).

Appreciation
An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.

Asset
Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).

Assignment
The transfer of a mortgage from one person to another.

Assumable Mortgage
A mortgage that can be taken over ("assumed") by the buyer when a home is sold.

Assumption
The transfer of the seller's existing mortgage to the buyer.

Assumption Clause
A provision in an assumable mortgage that allows a buyer to assume responsibility for the mortgage from the seller. The loan does not need to be paid in full by the original borrower upon sale or transfer of the property.

Assumption Fee
The fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage.

Balance Sheet
A financial statement that shows assets, liabilities, and net worth as of a specific date.

Balloon Mortgage
A mortgage that has level monthly payments that will amortize it over a stated term but that provides for a lump sum payment to be due at the end of an earlier specified term.

Balloon Payment
The final lump sum payment that is made at the maturity date of a balloon mortgage.

Basis Point
A basis point is 1/100th of a percentage point. For example, a fee calculated as 50 basis points of a loan amount of $100,000 would be 0.50% or $500.

Binder
A preliminary agreement, secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate.

Biweekly Payment Mortgage
A mortgage that requires payments to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard 30-year fixed-rate mortgage, and they are usually drafted from the borrower's bank account. The result for the borrower is a substantial savings in interest.

Blanket Mortgage
The mortgage is secured by a cooperative project, as opposed to the share loans on individual units within the project.

Breach
A violation of any legal obligation.

Bridge Loan
A form of second trust that is collateralized by the borrower's present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as "swing loan."

Broker
A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.

Buydown Mortgage
A temporary buydown is a mortgage on which an initial lump sum payment is made by any party to reduce a borrower's monthly payments during the first few years of a mortgage. A permanent buydown reduces the interest rate over the entire life of a mortgage.

Call Option
A provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at the end of a specified period for whatever reason.

Cap
A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease.

Capital Improvement
Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.

Cash-Out Refinance
A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower receives additional cash that can be used for any purpose.

Certificate of Deposit
Commonly known as a "CD," certificates of deposit bear a maturity date and a specified rate of interest. Penalties may apply for early withdrawal.

Certificate of Eligibility
A document issued by the federal government certifying a veteran's eligibility for a Department of Veterans Affairs (VA) mortgage.

Certificate of Reasonable Value (CRV)
A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.

Certificate of Title
A statement provided by an abstract company, title company, or attorney stating that the title to real estate is legally held by the current owner.

Chain of Title
The history of all of the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

Change Frequency
The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).

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

Closing
A meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs. Also called "settlement."

Closing Cost Item
A fee or amount that a home buyer must pay at closing for a single service, tax, or product. Closing costs are made up of individual closing cost items such as origination fees and attorney's fees. Many closing cost items are included as numbered items on the HUD-1 statement. Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey. Closing costs percentage will vary according to the area of the country.

Closing Statement
Also referred to as the HUD-1. The final statement of costs incurred to close on a loan or to purchase a home.

Cloud on Title
Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on the title cannot be removed except by a quitclaim deed, release, or court action.

Collateral
An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.

Collection
The efforts were used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary.

Combination Loan
With this type of loan, you receive a first mortgage for 80 percent of the loan amount, and a second mortgage at the same time for the remainder of the balance. If avoiding PMI (mortgage insurance) is important to you, consider combination loans--known as 80/10/10 loans or 80/20s.

Combined Loan-to-Value (CLTV)
The unpaid principal balances of all the mortgages on a property (first and second usually) are divided by the property's appraised value.

Co-Maker
A person who signs a promissory note along with the borrower. A co-maker's signature guarantees that the loan will be repaid because the borrower and the co-maker are equally responsible for the repayment. See endorser.

Commission
The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan.

Commitment Letter
A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer. Also known as a "loan commitment."

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.

Community Home Improvement Mortgage Loan
An alternative financing option that allows low- and moderate-income home buyers to obtain 95 percent financing for the purchase and improvement of a home in need of modest repairs. The repair work can account for as much as 30 percent of the appraised value.

Community Property
In some western and southwestern states, a form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate property of either spouse.

Comparables
An abbreviation for "comparable properties" is used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location, and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.

Compound Interest
E-LOAN CDs and Savings accounts compound interest daily. This refers to any interest earned on an account holder's principal balance, as well as any prior interest.

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

Conforming Loan
The current conforming loan limit is $417,000 and below. Conforming loan limits change annually.

Construction Loan
A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.

Consumer Reporting Agency (or Bureau)
An organization that prepares reports that are used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository as well as from other sources.

Contingency
A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.

Conventional Mortgage
A mortgage that is not insured or guaranteed by the federal government.

Convertibility Clause
A provision in some adjustable-rate mortgages (ARMs) allows the borrower to change the ARM to a fixed-rate mortgage at specified timeframes after loan origination.

Convertible ARM
An adjustable-rate mortgage (ARM) can be converted to a fixed-rate mortgage under specified conditions.

Cooperative (Co-Op)
A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

Corporate Relocation
Arrangements under which an employer moves an employee to another area as part of the employer's normal course of business or under which it transfers a substantial part or all of its operations and employees to another area because it is relocating its headquarters or expanding its office capacity.

Cost of Funds Index (COFI)
An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco.

Covenant
A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.

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.

Deed
The legal document conveying title to a property.

Deed in Lieu
A deed is given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure.

Deed of Trust
The document used in some states instead of a mortgage the title is conveyed to a trustee.

Default
Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.

Delinquency
Failure to make mortgage payments when mortgage payments are due.

Depreciation
A decline in the value of property; the opposite of appreciation.

Due-on-Sale Provision
A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.

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.

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.

Effective Gross Income
Normal annual income including overtime is regular or guaranteed. The income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is significant and stable.

Electronic Funds Transfer (EFT)
EFT allows account holders to transfer funds from an account electronically. This method of transfer is not only highly secure but also extremely efficient and easy to transact.

Encumbrance
Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.

Endorser
A person who signs ownership interest over to another party. Contrast with co-maker.

Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

Equity
A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage.

Escrow
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.

Escrow Account
The account in which a mortgage servicer holds the borrower's escrow payments prior to paying property expenses.

Escrow Analysis
The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due.

Escrow Collections
Funds are collected by the servicer and set aside in an escrow account to pay the borrower's property taxes, mortgage insurance, and hazard insurance.

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

Escrow Payment
The portion of a mortgagor's monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Known as "impounds" or "reserves" in some states.

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 the time of death.

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.

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 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
A congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds.

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.

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

Federal Housing Administration (FHA)
An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.

FHA Mortgage
A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.

Finder's Fee
A fee or commission paid to a mortgage broker for finding a mortgage loan for a prospective borrower.

First Adjustment
When you can expect the first rate adjustment in your ARM loan?

First Mortgage
A mortgage that is the primary lien against a property.

Float Down Option
An option to choose a lower rate within 30 days before the closing of your loan and "float down" to a lower rate than the previously locked-in rate. This allows you to pick the best rate within that time period.

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

Fixed Second Mortgage
See home equity loan.

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

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.

Fully Amortized ARM
An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.

Good Faith Estimate
An estimate of charges which a borrower is likely to incur in connection with a settlement.

Hazard Insurance
Insurance protects against loss of real estate caused by fire, some natural causes, vandalism, etc., depending upon the terms of the policy.

Home Equity Line of Credit
A credit line that is secured by a second deed of trust on a house. Equity lines of credit are revolving accounts that work like a credit card, which can be paid down or charged up for the term of the loan. The minimum payment due each month is interest only.

Home Equity Loan
A loan secured by a second deed of trust on a house is typically used as a home improvement loan.

Housing Ratio
The ratio of the monthly housing payment in total (PITI - Principal, Interest, Taxes, and Insurance) divided by the gross monthly income. This ratio is sometimes referred to as the top ratio or front-end ratio.

HUD
The U.S. Department of Housing and Urban Development.

Index
A published interest rate to which the interest rate on an Adjustable Rate Mortgage (ARM) is tied. Some commonly used indices include the 1 Year Treasury Bill, the 6-month LIBOR, and the 11th District Cost of Funds (COFI).

Impound Account
An impound account is an account established by the lender to pay a borrower's tax and insurance costs. The borrower's monthly mortgage payment is then increased to cover these costs, with the additional amount being held in the impound account and disbursed by the lender when the payments are due. Lenders typically prefer this arrangement because it reduces the possibility of a lapse in tax or insurance payments that could diminish the value of the lender's investment (your house). Therefore, while it is often possible to opt out of an impound account it will result in additional charges.

Interest-Only Loan Option
Loan payments have two components, principal and interest. An interest-only loan has no principal component for a specified period of time. These special loans minimize your monthly payments by eliminating the need to pay down your balance during the interest-only period, giving you greater cash flow control and/or increased purchasing power.

Jumbo Mortgage
The current loan limit for a conforming loan is $417,000. Loan amounts of $359,651 and above are considered non-conforming or jumbo mortgages and are usually subject to higher pricing.

Lien
An encumbrance against property for money due, either voluntary or involuntary.

Lender
The bank, mortgage company, or mortgage broker offering the loan.

LIBOR
LIBOR stands for London Inter-Bank Offered Rate. This is a favorable interest rate offered for U.S. dollar deposits between a group of London banks. There are several different LIBOR rates, defined by the maturity of their deposit. The LIBOR is an international index that follows world economic conditions. LIBOR-indexed ARMs offer borrowers aggressive initial rates and have proven to be competitive with popular ARM indexes like the Treasury bill.

Lifetime Cap
A provision of an ARM that limits the highest rate that can occur over the life of the loan.

Loan to Value Ratio (LTV)
The unpaid principal balance of the mortgage on a property is divided by the property's appraised value. The LTV will affect programs available to the borrower and generally, the lower the LTV the more favorable the terms of the programs offered by lenders.

Lock Period
The amount of time that a lender will guarantee a loan's interest rate. Once you've locked in the interest rate on a loan, the lender will guarantee that rate for a certain period of time, usually for 30, 45, or 60 days.

Lock-In
A written agreement guarantees the home buyer a specified interest rate provided the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.

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

Maturity Date
A pre-set date informing account owners when they can withdraw principal funds without incurring a penalty. (Please note that you may withdraw any generated interest before reaching an account's maturity date at E-LOAN.)

Mortgage
A legal document that pledges a property to the lender as security for payment of a debt.

Mortgage Disability Insurance
A disability insurance policy will pay the monthly mortgage payment in the event of a covered disability of an insured borrower for a specified period of time.

Mortgage Insurance (MI)
Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default. Usually required for loans with an LTV of 80.01% or higher.

Mortgagee
The person or company who receives the mortgage as a pledge for repayment of the loan. The mortgage lender.

Mortgagor
The mortgage borrower gives the mortgage as a pledge to repay.

Negative Amortization
Negative Amortization, or "deferred interest," occurs when the mortgage payment is less than a loan's accruing interest. This causes a loan's balance to grow instead of reduce or "amortize."

Non-Conforming Loan
Also called a jumbo loan. Conventional home mortgages are not eligible for sale and delivery to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because of various reasons, including loan amount, loan characteristics, or underwriting guidelines. Non-conforming loans usually incur a rate and origination fee premium. The current non-conforming loan limit is $333,701 and above.

Origination Fee
A fee imposed by a lender to cover certain processing expenses in connection with making a real estate loan. Usually a percentage of the amount loaned, such as one percent.

Owner Financing
A property purchase transaction in which the property seller provides all or part of the financing.

Periodic Cap
The maximum rate increase for a specific period for a specific loan (ARM) only.

PITI
Principal, interest, taxes, and insurance--the components of a monthly mortgage payment.

Planned Unit Developments (PUD)
A subdivision of five or more individually owned lots with one or more other parcels owned in common or with reciprocal rights in one or more other parcels.

Points
Charges are levied by the mortgage lender and are usually payable at closing. One point represents 1% of the face value of the mortgage loan.

Prepaids
Those expenses of property are paid in advance of their due date and will usually be prorated upon sale, such as taxes, insurance, rent, etc.

Prepayment Penalty
A charge imposed by a mortgage lender on a borrower who wants to pay off part or all of a mortgage loan in advance of schedule.

Principal
This term refers to the total amount of money originally deposited into a Savings or CD account. When taking out a loan, however, it refers to the amount of debt, not including interest.

Private Mortgage Insurance (PMI)
Insurance provided by nongovernment insurers that protects lenders against loss if a borrower defaults. Fannie Mae generally requires private mortgage insurance for loans with loan-to-value (LTV) percentages greater than 80%.

Qualifying Ratios
The ratio of your fixed monthly expenses to your gross monthly income is used to determine how much you can afford to borrow. The fixed monthly expenses would include PITI along with other obligations such as student loans, car loans, or credit card payments.

Rate
The annual rate of interest on a loan is expressed as a percentage of 100.

Rate Cap
A limit on how much the interest rate can change, either at each adjustment period or over the life of the loan.

Rate Lock-In
A written agreement in which the lender guarantees the borrower a specified interest rate provided the loan closes within a set period of time.

Rebate
The compensation received from a wholesale lender can be used to cover closing costs or as a refund to the borrower. Loans with rebates often carry higher interest rates than loans with "points" (see above).

Refinancing
The process of paying off one loan with the proceeds from a new loan using the same property as security.

Residential Mortgage Credit Report (RMCR)
A report requested by your lender that utilizes information from at least two of the three national credit bureaus and information provided on your loan application.

Seller Carry Back
An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.

Simple Interest
An amount earned on an account holder's principal, according to a specified rate. This does not include any compounding interest.

Stated/ Documented Income
Some loan products require only that applicants "state" the source of their income without providing supporting documentation such as tax returns.

Subordination
If you are refinancing your first mortgage and have an existing second or home equity line, one option is to "subordinate" the second mortgage: request that your second mortgage holder go back into the second lien position when you replace your existing first mortgage with the new refinance loan.

Survey
A print showing the measurements of the boundaries of a parcel of land, together with the location of all improvements on the land and sometimes its area and topography.

Tenants in common
An undivided interest in property taken by two or more persons. The interest need not be equal. Upon the death of one or more persons, there is no right of survivorship.

Title Insurance
Insurance against loss resulting from defects of title to a specifically described parcel of real property.

Title Search
An investigation into the history of ownership of a property to check for liens, unpaid claims, restrictions, or problems, to prove that the seller can transfer free and clear ownership.

Total Debt Ratio
Monthly debt and housing payments are divided by gross monthly income. Also known as Obligations-to-Income Ratio or Back-End Ratio.

Variable Rate
An interest rate that may change once an account opens.

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