ARMs, also referred to as Variable Rate Mortgages (VRMs) offer lower initial interest rates and can significantly reduce initial monthly payments. Their rates are subject to change at regular intervals depending on market conditions. Rate caps offer protection against extreme increases.

The interest rate of a mortgage that takes into account the interest, mortgage insurance, closing costs and points paid at closing. Expressed as a yearly rate and calculated over the life of the loan.

A request for an extension of credit, which requires the borrower to submit information regarding their income, savings, assets and debts, plus facts about the property being used to secure the loan.

An estimate of the market value of a property to assure that its value exceeds the loan amount. A fee is usually charged for this service.

Offered as a short-term fixed rate loan, balloon mortgages offer long-term amortization periods, so payments are equal to or less than traditional fixed rate mortgages. Balance is due at maturity. May have the option to refinance at current market rates.

Also referred to as the mortgagor, this is the individual who obtains a mortgage loan.

A time and date that is set to transfer title of property, sign loan documents and allocate charges and credits.

Closing costs are fees paid by the borrower when a property is purchased or refinanced. These fees include, in addition to the purchase price of the property, lawyer’s fees, title search and insurance, survey charges and fees to record the deed, mortgage and other documents. These costs are summarized in the Good Faith Estimate.

A lender’s written letter of agreement to grant a mortgage, with details of the terms and conditions by which the lender will lend and the borrower will borrow funds to finance a home.

A mortgage not insured by FHA or VA.

An offer made in response to a previous offer by the other party during negotiations for a final contract.

A detailed summary showing your borrowing history, including previous and current credit accounts and payment history. Mortgage lenders will refer to your credit report to determine your creditworthiness. You can request a free credit report yearly by going to www.annualcreditreport.com.

An agency which collects and sells information relevant to a person’s credit habits and history, then assigns a credit score to determine the creditworthiness of individuals. The three main credit reporting agencies are Experian, TransUnion and Equifax.

The value of a property minus the owner’s outstanding mortgage balance.

This federal law prohibits lenders from discriminating on the basis of the borrower’s race, color, national origin, religion, age, sex, marital status or public assistance program participation.

A separate amount collected along with your scheduled mortgage payment to pay future annual insurance premiums or taxes.

A federal law giving individuals the right to examine their own credit history, to find out if their credit information has been used by any third parties and to approach an agency to dispute a wrongful use or interpretation of their credit information.

A government agency whose primary purpose is to insure residential mortgage loans.

A federally chartered corporation that purchases mortgages on the secondary market, pools them and sells them as mortgage-backed securities to investors on the open market. Also known as Fannie Mae.

Also known as a credit score, it is an indicator of the credit worthiness of the borrower and the risk associated with the loan. FICO stands for Fair Isaac Credit Organization.

Provide the security of set monthly principal and interest payments throughout the length of your loan.

A written estimate of the settlement costs that the borrower will likely have to pay at closing, including inspections, title insurance, taxes, appraisals, etc.

Allows an individual to borrow up to a certain amount of money over a set period of time as determined by your lender. During that time, you can withdraw the money as you need it. As you pay off the principal, you can use the money again, like a credit card. A HELOC is beneficial for those who may need to draw money over a period of time, such as for education or ongoing medical bills.

Jumbo mortgages are available for those who wish to finance a larger dollar amount.

The person or institution that offers the mortgage loan.

A legal claim against a mortgaged property, which must be paid when the property is sold.

The percentage comparison between the unpaid principal balance of the mortgage and the sale price or the appraised value of the property, whichever is lower. The LTV indicates if potential losses due to nonpayment can be recouped by selling the asset.

A method of using property (such as a home) as security for the payment of a debt (the mortgage loan).

A legal document that legally binds the borrower to repay a mortgage loan at a specific interest rate in a specific period of time.

An acronym for Principal, Interest, Taxes and Insurance.

A non-refundable amount, equal to 1% of the principal amount of a mortgage, charged by the lender to cover certain costs of making the loan. Paying points reduces the interest rate to be charged on the mortgage.

Approval for a mortgage from a lender, subject to a formal loan application and credit check. Often used prior to shopping for a home to ensure the borrower is selecting a house in an appropriate price range.

Part of the amount borrowed which remains unpaid (excluding interest).

Mortgage insurance provided by nongovernmental insurers and paid for by the borrower that protects a lender against loss if the borrower defaults or is unable to pay the loan. This insurance is usually required when the down payment is less than 20% of the purchase price.

A commitment by a lender that guarantees a specific interest rate for a set period of time.

Real Estate Settlement Procedures Act – Legislation passed by the U.S. government that requires a good faith estimate of closing costs to be given to the borrower itemizing all costs of the mortgage loan.

The ability of a borrower to nullify a mortgage contract without penalty if done within three business days following the signing of a refinance transaction.

A market for the purchase and sale of an existing mortgage.

The legal document establishing evidence of ownership of a property.

Protects the lender or the owner against loss in the event of a property ownership dispute.

The process of examining all relevant records to verify the validity and completeness of the title to the property, and to confirm that there are no outstanding claims or liens on that property.

A federal and state law requiring lenders to completely disclose the full costs, terms and conditions of a mortgage to the borrower.

VRMs, also referred to as Adjustable Rate Mortgages (ARMs), offer lower initial interest rates and can significantly reduce initial monthly payments. Their rates are subject to change at regular intervals depending on market conditions. Rate caps offer protection against extreme increases.