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Home Buying Glossary



Acceleration clause
A provision in a mortgage that gives the lender the right to demand payment of the entire outstanding balance if a monthly payment is missed.
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. It includes the base interest rate, private mortgage insurance, and loan origination fee. See Points.
A professional opinion of the market value of a property.
An increase in the value of a property as a result of changes in market conditions or other causes.
Assessed value
The value placed upon property by a public tax assessor for purposes of taxation.
Assumable mortgage
An alternative to traditional mortgage where the buyer has the ability to take over the existing mortgage of the seller as long as the lender of that mortgage approves.
The transfer of the seller's existing mortgage to the buyer.


Buyer broker
An individual employed on a fee or commission basis as an agent to bring buyers and sellers together and assist in negotiating contracts between them.


A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase.
Cash reserve
A requirement of some lenders that buyers have sufficient cash remaining after closing to make the first two mortgage payments.
Clear title
A title that is free of liens (legal claims) and legal questions as to ownership of the property.
The transaction where a sale is finalized, the buyer signs the mortgage, and closing costs are paid. Also called "settlement."
Closing costs
Expenses (in addition to 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 home buyer.
Conforming mortgage
Loan amounts up to $417,000, except in Alaska and Hawaii, where the conforming loan limit is up to $625,500.
A condition that must be met before a contract is legally binding.
Conventional mortgage
Any mortgage that meets Fannie Mae and/or Freddie Mac guidelines and is not insured or guaranteed by the federal government.
Convertible ARM
An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions.
A form of common property ownership in which the residents of an apartment building do not own their own units, but rather own shares in the corporation that owns the property. Navy Federal does not offer mortgages for these properties.
A clause in a mortgage that obligates or restricts the borrower and can result in foreclosure if violated.


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.
Failure to make mortgage payments in a timely manner or to comply with other conditions of a mortgage.
A decline in the value of property; the opposite of "appreciation."
Discount points
A one-time charge by the lender to lower a loan's interest rate and monthly payment, with each point amounting to 1% of the loan amount.
Due-on-sale clause
A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property securing the mortgage.


Earnest money
A deposit given to the seller to show that a prospective buyer is serious about buying a property.
A right-of-way giving persons other than the owner access to or across 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, receipt of income from public assistance programs, or that the consumer in good faith has exercised any right under the Consumer Credit Protection Act.
The difference between the market value of a property and the homeowner's outstanding mortgage balance.
Equity loan
A loan based on the borrower's equity in his or her home.
Escalation Clause
An agreement in the sales contract whereby the buyer agrees to increase his or her offer on a property by agreed-upon increments if there are other offers from other interested buyers.
The holding of documents and money by a neutral third party until closing; also, an account held by the lender into which a homeowner pays money for taxes and insurance.


Fair Credit Reporting Act
A consumer protection law that regulates the collection of credit information and access to your credit report. Requires that any person or entity requesting your report must demonstrate a permissible purpose for the information before it is released.
First mortgage
A mortgage in a first lien position on the property that secures the mortgage. It has first claim in the event of default.
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, you acknowledge that Navy Federal 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.
The lender's postponement of foreclosure to give the borrower time to catch up on overdue payments.
The process by which a mortgaged property may be sold by the lender when a mortgage is in default.


Hazard insurance
Insurance to protect the homeowner and the lender against physical damage to a property from fire, wind, vandalism, or other hazards.
Home inspection
An examination of the structure and mechanical systems (HVAC, plumbing, electrical, and so forth) to determine a property's safety and to make the potential homebuyer aware of any repairs that may be needed.
Homeowners insurance
An insurance policy that combines liability coverage and hazard insurance.
Homeowners warranty
A type of insurance that covers repairs to specified parts of a house for a specific period of time.


Interest-rate cap
A provision of an adjustable-rate mortgage (ARM) limiting how much interest rates may increase per adjustment period. See also Lifetime cap.


Joint tenancy
A form of co-ownership giving each tenant (owner) equal interest and equal rights in the property, including the right of survivorship.
Jumbo mortgage
Loan amounts greater than $417,000 and higher than the maximum county loan limit, up to $2 million.


Lease-purchase mortgage loan
An alternative financing option that allows homebuyers to lease a home with an option to buy. Each month's rent payments consist of principal, interest, taxes, and insurance (PITI) payments on the first mortgage, plus an extra amount that is earmarked for a savings account in which money for a down payment accumulates.
A legal claim against a property that must be paid when the property is sold.
Lifetime cap
A provision of an ARM that limits the total increase in interest rates over the life of the loan.
Loan commitment
See Commitment letter.
Loan servicing
The collection of mortgage payments from borrowers and fulfillment of related responsibilities by a loan servicer.
Loan-to-value ratio (LTV)
The relationship between the amount of a mortgage and the total value of the property.
A rate lock guarantees a specific interest rate and/or discount points, certain standard settlement fees for a definite time period prior to closing, as well as the terms of your loan as stated in your application. By locking into that specific interest rate and/or discount points, you and the lender acknowledge that your loan will close at the agreed upon pricing and terms even if market interest rates decline.
A written agreement guaranteeing the homebuyer a specified interest rate, provided that the loan is closed within a set time. The lock-in also usually specifies the number of points to be paid at closing.


The set percentage the lender adds to the index rate to determine the interest rate of an adjustable-rate mortgage (ARM).
A legal document that pledges a property to the lender as security for payment of a debt.
Mortgage broker
A company that, for a fee, matches borrowers with lenders.
The lender in a mortgage agreement.
Mortgage insurance
See Private mortgage insurance.
Mortgage insurance premium (MIP)
The fee paid by a borrower to Federal Housing Administration 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; the agreement is secured by a mortgage.
The borrower in a mortgage agreement.


Negative amortization
Payment terms under which the borrower's monthly payments do not cover the interest due; as a result, the loan balance increases.
Notice of default
A formal written notice to a borrower that default has occurred and that legal action may be taken.


Origination fee
A fee paid to a lender for processing a loan application; it is stated as a certain number of points, with one point equal to 1% of the mortgage amount.
Owner financing
A purchase in which the seller provides all or part of the financing.


Payment cap
A provision of some adjustable-rate mortgages (ARMs) that limits how much a borrower's payments may increase regardless of how much the interest rate increases; this may result in negative amortization.
Principal, interest, taxes, and insurance—the components of a monthly mortgage payment.
A one-time charge by the lender to lower the interest rate of your mortgage; a point is 1% of the loan amount.
Preapproved loans (PALs)
This program, which is available for purchases only, allows members to submit an application and obtain a credit decision without a ratified contract. Having a preapproved loan can help empower the borrower when he or she is negotiating a sales contract.
Prepayment penalty
A fee charged to a borrower who pays off a loan before it is due.
The initial evaluation where the lender has reviewed your financial picture and believes you are a good candidate for a loan.
The amount borrowed or the loan amount remaining; also, that part of the monthly payment that reduces the outstanding balance of a mortgage.
Private mortgage insurance (PMI)
Insurance provided by nongovernmental insurers that protects lenders against loss if a borrower defaults.
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.


Ratios (debt-to-income)
The two guidelines that reflect the relationship between the member's debt and income. One ratio compares the housing expense with income; a second compares total obligations, including the housing expense and other debt, with income. These guidelines are referred to as "top and bottom ratios," "front and back ratios," or "front-end and back-end ratios."
Real Estate Settlement Procedures Act
Requires that loan originators issue a Good Faith Estimate within three days after application that discloses loan terms and closing costs.
The process of paying off one loan with the proceeds from a new loan secured by the same property.
Rent with option to buy
See Lease-purchase mortgage loan.


Sales contract
See Purchase and sales agreement.
Second mortgage
A mortgage conferring rights that are subordinate to those of the first mortgage holder.
Secondary financing
A loan secured by a mortgage or trust deed, whose lien is junior (secondary) to another mortgage or trust deed.
See Closing
Settlement sheet
The computation of costs payable at closing that determines the seller's net proceeds and the buyer's net payment.
Super Conforming mortgage
Loan amounts greater than $417,000 and up to the maximum county loan limit available in high-cost areas. Exception in Hawaii, where the maximum loan limit is $625,500 to $721,050.
A drawing showing the legal boundaries of a property.


Tenancy by entirety
Allows spouses to own property together as a single legal entity. Under a tenancy by entirety, creditors of an individual spouse may not attach and sell the property of the other spouse, only creditors of the couple may attach and sell the interest in the property owned by the couple.
Tenancy in common
A type of joint ownership in a property without the right of survivorship.
A legal document establishing the right of ownership.
Title company
A company that specializes in insuring title to property.
Title insurance
Insurance to protect the lender (lender's policy) or the buyer (buyer's policy) against loss arising from disputes over ownership of a property.
Title search
A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.
Transfer tax
State or local tax payable when title passes from one owner to another.
A federal law that requires lenders to disclose fully, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) of interest and other charges.


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