Adjustable Rate Mortgage: An adjustable rate mortgage, commonly referred to as an ARM, is a loan type that allows the lender to adjust the interest rate during the term of the loan. Generally, these changes are determined by a margin and an index so that the interest rate changes, up or down, are based on market conditions at the time of the change. Most often these interest rate changes are limited by a rate change cap and a lifetime cap. If you apply for an adjustable rate mortgage, the lender is required to provide you with an ARM Program Disclosure which spells out the terms of the loan.

Amortization: The gradual repayment of a mortgage by installments.

Amortization schedule: A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the remaining balance.

Annual percentage rate (APR): The total yearly cost of a mortgage stated as a percentage of the loan amount; includes the base interest rate, primary mortgage insurance and loan origination fee (points).

Application Fee: Funds required by a lender in advance of processing a loan request. Generally a deposit is collected to cover the costs of an appraisal and credit report and may or may not be refundable.

Appraisal: A professional opinion of the market value of a property.

Appraised Value: An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience and analysis of the property.

Appreciation: An increase in the value of a house due to changes in market conditions or other causes.

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).

Blanket Insurance Policy: A single policy that covers more than one piece of property (or more than one person).

Broker: A state-licensed agent who, for a commission or a fee, represents property owners in real estate transactions.

Budget: A detailed plan of income and expenses estimated over a specified period of time. Budgets provide guidelines for managing costs and profits.

Buydown: A process that allows a borrower to obtain a lower interest rate on a mortgage by paying discount points to a lender. A temporary buydown will reduce the interest rate paid during the first few years of the loan. A permanent buydown reduces the interest rate over the entire life of the loan.

Cash reserve: A requirement of some lenders that buyers have sufficient cash remaining after closing to make the first two mortgage payments.

Certificate of Deposit: An instrument, issued by a bank or other financial institution, that is evidence of a type of savings deposit. The document includes the institution’s promise to return the deposit, plus earnings at a specified interest rate within a specified period.

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

Closing: The transaction where a sale is finalized; the buyer signs the mortgage, and closing costs are paid. Also called “settlement.”

Closing costs: Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called “settlement costs.”

Commitment letter: A formal offer by a lender stating the terms under which it agrees to loan money to a homebuyer.

Condominium: A form of property ownership in which the homeowner holds title to an individual dwelling unit plus an interest in common areas of a multi-unit project.

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

Conventional mortgage: Any mortgage that is not insured or guaranteed by the federal government.

Credit Bureau: An agency that gathers and keeps your credit record.

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

Credit Report: A record of an individual's current and past debt repayment patterns. A credit history helps a lender to determine whether a borrower has a history of repaying debts in a timely manner. For our comparison purposes, the credit report fee is considered to be a third party fee.

Debt: An obligation to pay another.

Deed: The legal document conveying title to a property.

Deed of trust: The document used in some states instead of a mortgage; title is conveyed to a trustee rather than to the borrower.

Default: Failure to make mortgage payments in a timely manner or to comply with other conditions of a mortgage.

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

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

Discount Points: Fees that are collected by the lender in exchange for a lower interest rate. Each discount point is 1% of the loan amount. For our comparison purposes, a discount point is considered to be a lender fee. To determine if it is wise to pay discount points to obtain a lower rate, you must compare the up front cost of the points to the monthly savings that result from obtaining the lower rate. Sometimes referred to as "points".

Discount Rate: The interest rate that the Federal Reserve charges member banks for loans, using government securities or eligible paper as collateral. This provides a floor on interest rates, since banks set their loan rates a notch above the discount rate.

Down payment: The portion of the purchase price of a property that the borrower will be paying in cash rather than included in the mortgage amount.

Earnest money: A deposit given to the seller to show that a prospective buyer is serious about buying the house.

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

Equal Credit Opportunity Act (ECOA): A federal law that prohibits lenders from denying mortgages on the basis of the borrower's race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

Equity: The difference between the market value of a property and the homeowner's outstanding mortgage balance.

Escrow: The holding of documents and money by a neutral third party prior to closing; also, an account held by the lender into which a homeowner pays money for taxes and insurance.

Escrow Payment: The portion of a borrower’s monthly mortgage payment that is held by the loan servicing company to pay for property taxes, hazard insurance, mortgage insurance and other items as they become due.

Fair Credit Reporting Act: A consumer protection law that sets up a procedure for correcting mistakes on one's credit record.

Fannie Mae: FNMA (Federal National Mortgage Association) One of the congressionally chartered, publicly owned companies that is the largest source of home mortgage funds.

Federal Housing Administration: An area of the U.S. Department of Housing and Urban Development (HUD) that insures low downpayment mortgages granted by some lenders. The loan must meet the established guidelines of FHA in order to qualify for the insurance.

FHA Mortgage: A mortgage insured by the Federal Housing Administration (FHA). FHA loans are also known as government mortgages.

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

Float to Lock: You may lock in your interest rate and/or discount points up to the date that your loan documents are sent to your settlement agent. By selecting this option, NVR Mortgage does not guarantee a specific interest rate and/or discount points. Select this option if you do not have a signed sales contract.

Flood insurance: Insurance required for properties in federally designated flood areas.

Foreclosure: The process by which a mortgaged property may be sold by the lender when a mortgage is in default.

Freddie Mac: FHLMC (Federal Home Loan Mortgage Corporation) One of the congressionally chartered, publicly owned companies that is the largest source of home mortgage funds.

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

Hazard insurance: Insurance to protect the homeowner and the lender against physical damage to a property from fire, wind, vandalism or other hazards.

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

Home inspection: An examination of the structure and mechanical systems to determine a home's safety; makes the potential homebuyer aware of any repairs that may be needed.

Homeowners insurance: An insurance policy that combines liability coverage and hazard insurance.

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

Homeowners Association Dues: Payments made to an association responsible for the maintenance of the common areas in a condominium or subdivision development.

Housing Ratio: A standard calculation performed by mortgage lenders to determine if a borrower qualifies for a specific loan type and amount. It is calculated by dividing the monthly housing expense (Principal, Interest, Taxes and Insurance) by the borrower’s monthly gross income. Also referred to as a front-end ratio or a top ratio.

HUD: HUD, also known as the U.S. Department of Housing and Urban Development, insures home mortgage loans made by lenders meet minimum standards for such homes.

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

Interest Rate: The cost of borrowing a lender's money. Interest takes into account the risk and cost to the lender for a loan. The interest rate on a fixed rate mortgage depends on the going market rate and how many discount points you pay up-front. An adjustable rate mortgage's interest is a variable rate made up of the index and the lender's margin.

Joint tenancy: A form of co-ownership giving each tenant equal interest and equal rights in the property, including the right of survivorship.

Judgment: A decree made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor's real property as collateral for the judgment's creditor.

Jumbo Mortgage: A loan that exceeds the maximum loan amount allowed by the most common mortgage investors. The cost of obtaining a jumbo mortgage is generally higher than the cost of obtaining a conforming mortgage. Also known as a non-conforming loan.

Lender: The bank, mortgage broker, or financial institution providing the loan funds to a borrower.

Lender Credit: A lender may reduce the actual amount of the closing costs by a credit in order to offer more competitive fees.

Liabilites: A person's financial obligations including both long-term and short-term debt, as well as any other amounts that are owed to others.

Lien: A legal claim against a property that must be paid when the property is sold.

Loan-to-value ratio (LTV): The relationship between the amount of a mortgage and the total value of the property.

Lock: By choosing this option your loan will NOT close at an interest rate and/or discount points lower than those locked, even if market interest rates and/or discount points decline.

Lock Period: The number of days that the lender will guarantee the interest rate offered for a loan. In order to hold the guaranteed interest rate for a loan, the loan closing must occur during the lock period.

Lock-in: A written agreement guaranteeing the homebuyer 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 set percentage the lender adds to the index rate to determine the interest rate of an ARM.

Merged Credit Report: A credit report that contains information from at least three credit repositories. Any duplicate entries are combined to provide a concise summary of a your credit.

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

Mortgage insurance premium (MIP): The fee paid by a borrower to FHA or a private insurer for mortgage insurance.

Mortgage note: A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time; the agreement is secured by a mortgage.

Origination fee: A fee paid to a lender for processing a loan application; it is stated as a percentage of the mortgage amount, or points.

PITI: Stands for principal, interest, taxes and insurance—the components of a monthly mortgage payment.

Planned Unit Development (PUD): A housing project that includes common property that is owned and maintained by a homeowners' association for the benefit and use of the individual unit owners.

Points: A one-time charge by the lender to increase the yield of the loan; a point is 1 percent of the loan amount.

Prequalification: The process of determining how much money a prospective homebuyer will be eligible to borrow before a loan is applied for.

Principal: The amount borrowed or loan amount remaining; also, that part of the monthly payment that reduces the outstanding balance of a mortgage.

Purchase and sale agreement: A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Qualifying Ratios: Calculations performed by lenders to determine your ability to repay a loan. The first qualifying ratio is calculated by dividing the monthly PITI by the gross monthly income. The second ratio is calculated by dividing the monthly PITI and all other monthly debts by the gross monthly income.

Ratios (Debt-to-Income): Two ratios reflect the relationship between the member’s debt and income. The first ratio compares the housing expense to income; the second compares total obligations, including the housing expense and other debt, to income. These guideline ratios are referred to as “top and bottom ratios,” “front and back ratios” or “front end and back end ratios”.

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

Refinancing: The process of paying off one loan with the proceeds from a new loan secured by the same property.

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

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

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

Taxes and other Unavoidable Fees: Fees that we consider to be taxes and other unavoidable fees include State/Local Taxes and recording fees. These fees will most likely have to be paid regardless of the lender you choose. If you see a tax or recording fee in the fee comparison table that is listed by some of the sites and not others, don't assume that you won't have to pay it. It probably means that the lender who doesn't list the fee hasn't done the research necessary to provide accurate closing cost information nationwide. Contact one of the sites directly for more information or talk to your real estate agent or attorney for guidance.

Title: A legal document establishing the right of ownership.

Title Company: A company that specializes in insuring title to property.

Truth-in-Lending: A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges.

Underwriting: The process of evaluating a loan application to determine the risk involved for the lender.

VA Funding Fee: The Department of Veteran’s Affairs (VA) charges a Funding Fee to most veterans who obtain a VA mortgage loan to help sustain the VA home loan program. Only veterans receiving VA disability are exempt from paying this fee. The VA Funding Fee is a percentage of the principal loan amount and is due at closing. The amount of the VA Funding Fee varies depending on specifics of the transaction. The full amount can usually be financed as part of the loan amount or paid in cash.

VA Loan: A mortgage for veterans and service persons. The loan is guaranteed by the Department of Veterans Affairs (VA) and requires low or no down payment.